AljeffriDeanaljeffridean.com/portal/images/stories/pdf/doc/Budget Summary 2007.pdf · Section Page A Commentary 1 B Highlights 3 C Summary of Amendments to Direct Taxation 6 D Summary

AljeffriDean BUDGET 2007: Summary & Comments

Friday. September 1, 2006

September 1, 2006 To: Our valued clients, friends and overseas affiliates

BUDGET 2007 Summary & Comments

We are proud once again this year to present our own BUDGET 2007 : Summary & Comments, a summary and synopsis of the 2007 Budget proposals. Our focus in this summary has been on matters, which we reckoned to be important and useful to the reader with useful information to assist them in proper planning and decision making for year ahead. For ease of reference and reading, the summary has been arranged into eight sections as follows:

Disclaimer: This publication is distributed gratuitously and without liability. AljeffriDean, Chartered Accountants and its associates, partners and employees disclaim all and any liability and responsibility to any person whosoever in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance wholly or partly upon the whole or any part of the contents of this publication.

Section Page

A Commentary

1

B Highlights

3

C Summary of Amendments to Direct Taxation

6

D Summary of Amendments to Indirect Taxation

25

E Summary of Business Opportunities and Other Incentives

31

F Synopsis and Comparison

43

G Summary of Revenues and Allocations

83

H Tax Rates & Relief 86

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1 Friday. September 1, 2006

SECTION A

COMMENTARY

Malaysian National Budget 2007 presented by our Prime Minister and Finance Minister YAB Dato' Seri Abdullah Badawi today has special significant in that it is an indicator as to how the nation implements the national mission in achieving the national vision to achieve a developed status by year 2020.

These can be seen from the number of new initiatives proposed in Budget 2007. Focus has been made on areas that Malaysia has an economic edge particularly in Agriculture, Biotechnology and Islamic Banking.

Many incentives has been proposed to make Malaysia the leading player in Islamic banking in the global arena. Particular attention has also been given to make Malaysia competitive in attracting the setting up of an investment in the Real Estate Investment Trust which will have a positive impact on the real property sectors and derivative market.

We hope the introduction of the very attractive Bionexus Status Tax Incentive will be successful in attracting Foreign Direct Investments just like the Pioneer Status for the manufacturing industry and the MSC Status for the ICT industry for the years prior to this.

The economic development initiatives have been well thought out to place the various Greenfield projects appropriately spread out throughout the country. This includes the proposed locations for: (i) The Bio Innovation Centre in Nilai, Negri Sembilan, (ii) The Beef Valley Project in Gemas, Negri Sembilan, (iii) The Halal Parks in Pasir Mas, Kelantan; Gambang, Pahang; Chendering, Trengganu

and Padang Besar, Perlis, and; (iv) The Ornamental Fish Cluster Project in Penang. Regional specialisation is also being proposed as can be seen from the plan for the Northern Economic Corridor, the South Johor Economic Region and the East Coast Corridor. AljeffriDean hopes that details of the business opportunities such as matching grants, the form of financing through the special funds will be finalised and made available to entrepreneurs and business consultants soonest possible. The reduction of one percentage point for corporate tax, each in 2007 and 2008 although fail to meet the expectation of the corporate taxpayers is nonetheless a reflection of the Government's recognition that the corporate tax rate has to be lower than the current 28% to create a competitive business environment in the region. In this respect, the directive for the introduction of advance rulings in Income Tax Administration and to make available an improved tax audit guide and the framework for tax investigation are most welcome. We hope the initiative will create certainty for the taxpayers to plan and manage their businesses and take comfort that the tax administration in future will be very transparent where there will be uniformity in the process and systems of tax audits and investigations that will not overburden the taxpayers.


Friday. September 1, 2006 2

The special treatment proposed for the property developers has removed the unwarranted difficulty faced by this industry till now which is not adequately dealt with by the present legislation. We hope this is an indication that the Government listened to the views of the Rakyat and is prepared to response positively to peculiar cases in specific industries. Although the 2007 Budget does not contain spectacular goodies for the general public in the short term, it does provide the dosages to instill confidence in the economic growth of Malaysia in the long term. Good luck Malaysia as we begin to activate the Ninth Malaysia Plan from now till the year 2020.

AljeffriDean Kuala Lumpur September 1, 2006

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SECTION B

HIGHLIGHTS

THE PROSPECT OF MALAYSIAN ECONOMY

• The Gross Domestic Product (GDP) is projected to increase by 6 % for next year.

• Private investment is expected to increase by 10.5% while public investment will continue to grow of 8%.

• It is anticipated that the following sector will recorded growth expected as follow:

• The manufacturing sector - increase by 6.8%

• The service sector (including ICT, tourism and education) - increase by 6%.

• The agriculture sector - increase by 4.7%.

• The construction sector - increase by 3.7%.

• The budget deficit is expected to be reduced to a level 3.4% of GDP in 2007. BUDGET 2007

To Move The Economy Up The Value Chain

• The corporate tax rate will be reduced to 27% in the year assessment 2007 and further reduce 26% for the year assessment 2008.

• The government allocated RM3.6 billion for agriculture sector.

• Khazanah Nasional will establish an agriculture fund of RM200 million.

• RM210 million is allocated for development of the biotechnology sector.

• RM50 million is allocated to set up halal parks.

• The RM500 tax rebate for the incentive to purchase of a computer will be replaced with a tax relief of RM3,000 once in every three years.

• Income tax exemption for 10 years be given to all Islamic Banking and Takaful entities that conduct their business in foreign currencies.

• Income tax exemption for 10 years be given to fund managers, who manage Islamic funds for foreign investors.

• Dividends received by individual investors and local unit trust from listed Real Estate Investment Trust (REITs) be taxed at a rate of 15% while foreign institutional investors at 20%.



• RM100 million of Overseas Investment Fund (OIF) will be established to provide soft loans to domestic companies.

• RM149 million is allocated for Visit Malaysia Year 2007.

• To promote tourism, income tax exemption for eligible tour operators is extended for five years.

• RM27.5 billion is allocated for the construction of road, quarters and other infrastructure facilities.

To Raise The Capacity For The Knowledge And Innovation And Nurture ‘First Class Mentality’

• Tax relief on the purchase of books be increased from RM700 to RM1,000 per year.

• For early cancer detection, RM50 subsidy for every mammogram done in approved private clinics and hospitals.

• RM721 million is provided to implement various youth and sports programmes.

To Address Persistent Socio-Economic Inequalities Constructively And Productively

• Perlis will be declared a promoted area in which designated projects will be eligible for a higher level of income tax exemption.

• Development allocation of RM2.3 billion has been provided for Johor, especially for Southern Johor Economic Region (SJER).

• RM3.4 billion is allocated for implementation of various rural development projects and programmes.

• RM578 million is allocated to accelerate the implementation of poverty eradication programmes and projects.

To Improve The Standard And Sustainability Of Quality Of Life

• Examination fees for UPSR, PMR, SPM, as well as STPM abolished in all Government schools, beginning with 2007 school session.

• RM302 million is allocated for programmes to improve the less fortunate groups welfare.

• RM10 billion is allocated for the provision of health facilities and equipment, services of specialists and training programmes.

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• Excise duty on cigarettes up by one sen per stick and duty on liquor with alcohol content of more than 40% up by RM5 per litre.

• RM1 billion is provided for programmes to preserve ecological balance and splendour.

• RM685 million is allocated for the development and management of arts, promotion of culture and heritage activities.

To Strengthen The Institutional And Implementation Capacity

• RM200 million is allocated to The Public Transport Development Fund to assist taxi and bus operators to acquire new vehicles.

• Civil servants earning up to RM750 a month will be paid two month bonus and those earning more than RM750 a month will be paid one month bonus subject to a minimum of RM1,500.

• One-off payment ranging from RM200 to RM400 will be paid by the Government to the pensioners.



SECTION C

SUMMARY OF AMENDMENTS TO DIRECT TAXATION REVIEW OF COMPANY INCOME TAX RATE PRESENT Company income tax rate is 28%. This rate also applies to the

following entities:

i) A trust body; ii) An executor of an estate of an individual who was

domiciled outside Malaysia at the time of his death; and

iii) A receiver appointed by the court. Small and medium scale companies (SMEs) with paid up capital not exceeding RM2.5 million are taxed at 20% on chargeable income up to RM500,000 and the remaining amount at 28%.

PROPOSED The company income tax rate be reduced in stages by 2

percentage points. The rate will be 27% for the year of assessment 2007 and 26% for the year of assessment 2008 his new rate also applies to the following entities:

i) A trust body; ii) An executor of an estate of an individual who was

domiciled outside Malaysia at the time of his death; and iii) A receiver appointed by the court.

Small and medium scale companies (SMEs) with paid up capital not exceeding RM2.5 million are taxed at 20% on chargeable income up to RM500,000 and the remaining amount The rate will be 27% for the year of assessment 2007 and 26% for the year of assessment 2008.

IMPACT Enhance the nation's competitiveness. EFFECTIVE DATE Year of assessment 2007 REFERENCE Part I, Schedule I Income Tax Act, 1967

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ENHANCING INCENTIVE FOR VENTURE CAPITAL INDUSTRY PRESENT

Venture capital companies (VCCs) have the option to choose between the following incentives:

i) Income tax exemption for 10 years for investing at least 70% of its investment funds in venture companies (VCs) in the form of seed capital, start-up or early stage financing; or

ii) Deduction for income tax purposes equivalent to the

value of investment made in VCs. PROPOSED VCCs investing at least 50% of its investment funds in VCs in

the form of seed capital be given income tax exemption for 10 years.

IMPACT Increase funding in seed capital. EFFECTIVE DATE Year of assessment 2007 REVIEW OF PENALTY ON WITHHOLDING TAX PRESENT Payment made to a non-resident such as interest, royalty, rental

and technical fees is subject to withholding tax. In respect of withholding tax not paid, a penalty of 10% is imposed on the total payment made to a non-resident.

PROPOSED

The 10% penalty on withholding tax be imposed on the amount of unpaid tax.

IMPACT To reduce the cost of doing business. EFFECTIVE DATE September 2, 2006 REFERENCE Section 107A(2), 109, 109B, 109D Income Tax Act, 1967 TAX TREATMENT ON ZAKAT PAID BY COOPERATIVES AND TRUST BODIES PRESENT Zakat paid by companies to Islamic Religious Authorities is

allowed as a deduction under the Income Tax Act 1967 subject to a maximum of 2.5% of the aggregate income. This deduction was effective from year of assessment 2005.

PROPOSED

The above deduction is extended to cooperatives and trust bodies.

IMPACT Accord equal tax treatment between companies, cooperatives

and trust bodies. EFFECTIVE DATE Year of assessment 2007 REFERENCE Section 44C(11A) Income Tax Act, 1967



INTRODUCTION OF ADVANCE RULINGS IN INCOME TAX ADMINISTRATION PRESENT No specific provision for the issuance of advance ruling in the

Income Tax Act 1967. The Inland Revenue Board (IRB) issues Public Rulings to make known the Director General's interpretation of provisions of the Act that have general applications. If a taxpayer does not agree with the interpretation, he may request for a private ruling. Since Malaysia is on a full self assessment system, it is only appropriate that IRB extends its services to the issuance of advance ruling.

PROPOSED

Specific provision be introduced under the Income Tax Act 1967, to allow a taxpayer to request for an advance ruling. An advance ruling is a written statement given by the Director General on the tax treatment of an arrangement to be undertaken by the taxpayer. The salient features of the advance ruling system to be introduced are as follows:

i) Application to be made in a prescribed form; ii) Fees to be charged on the application for advance

ruling;

iii) The ruling is only applicable to the applicant;

iv) The ruling can only be issued based on actual facts and not based on assumptions; and

v) The advance ruling issued by IRB is not applicable if the

facts used in making the advance ruling are incorrect or different.

IMPACT Promote clarity and certainty in the interpretation and

application of the tax law. EFFECTIVE DATE January 1, 2007 REFERENCE Section 138A, 138B Income Tax Act, 1967

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FRAMEWORK FOR TAX AUDIT AND INVESTIGATION BY INLAND REVENUE BOARD PRESENT Tax audit is the primary activity of the Inland Revenue Board

(IRB) to enhance voluntary compliance. Currently, information on tax audit can be obtained from the "IRB Guide on Tax Audit". Tax investigation is an enforcement activity carried out by the investigation centres of IRB to curb tax evasion. No guideline on investigation has so far been issued by IRB.

PROPOSED

The existing Guide on tax audit be updated and the framework for tax investigation be issued by the IRB. The main areas to be covered in the guideline/framework are as follows:

i) Criteria for audit and investigation selection; ii) Tax audit and investigation methodology;

iii) Rights and responsibilities of taxpayers and tax agents,

audit and investigation officers;

iv) Settlement upon completion of an audit or investigation; and

v) Offences and penalties.

IMPACT Maintain and enhance public confidence in the tax

administration. EFFECTIVE DATE January 1, 2007 REVIEW OF INCENTIVES FOR BIOTECHNOLOGY INDUSTRY PRESENT Companies involved in the biotechnology industry are eligible

for the following tax incentives: 1. A company undertaking biotechnology activity and has been

approved with bionexus status by the Malaysian Biotechnology Corporation Sdn. Bhd. is eligible for the following incentives:

i) 100% income tax exemption for 10 years commencing

from the date of commencement of commercial production OR Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years;

ii) Tax exemption on dividends distributed by a bionexus

company;



iii) Exemption of import duty and sales tax on raw materials/components and machinery/equipment;

iv) Double deduction on expenditure incurred for R&D; and

v) Double deduction on expenditure incurred for the

promotion of exports; AND

2. A company that invests in its subsidiary, which is a bionexus

status company, is granted tax deduction equivalent to the amount of investment made in that subsidiary provided that the investing company owns at least 70% of that subsidiary.

PROPOSED

1. The existing incentive in Para l (i) be enhanced by amending the commencement date of the exemption period from the date of commercial production to the first year the company derives profit;

2. New incentives be introduced as follows:

i) A bionexus company be given a concessionary tax rate of 20% on income from qualifying activities for 10 years upon the expiry of the tax exemption period;

ii) A company or an individual investing in a bionexus

company be given a tax deduction equivalent to total investment made in seed capital and early stage financing;

iii) A bionexus company undertaking merger and acquisition

with a biotechnology company be given exemption of stamp duty and real property gains tax within a period of 5 years until 31 December 2011; and

iv) Buildings used solely for the purpose of biotechnology

research activities be given Industrial Building Allowance over a period of 10 years

Applications for these incentives will be evaluated by a Committee under the Malaysian Biotechnology Corporation Sdn. Bhd. and recommended for approval by the Minister of Finance.

IMPACT Further enhance the biotechnology industry. EFFECTIVE DATE September 2, 2006

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REVIEW OF TAX INCENTIVE FOR THE PURCHASE OF COMPUTER PRESENT Individual taxpayers are eligible for a tax rebate of RM500 for

the purchase of a computer. The rebate is given once in 5 years per household.

PROPOSED

i) The rebate of RM500 be amended to a tax relief of up to RM3,000;

ii) The relief be given once in 3 years (instead of once in 5 years);

iii) In the case of separate assessment, each taxpayer is eligible

to claim the relief (instead of on a per household basis); and

iv) In the case of combined assessment, such expense is

deemed incurred by the spouse who pays income tax.

IMPACT Encourage individual ownership of computers. EFFECTIVE DATE Year of assessment 2007 REFERENCE Section 46(1)(j) Income Tax Act, 1967; Section 6A(3A) Income

Tax Act, 1967 ENHANCING THE INCENTIVE FOR PROMOTION OF MALAYSIAN BRAND NAME PRESENT A company that incurs advertising expenditure in the promotion

of Malaysian brand name locally is eligible to claim double deduction. This incentive is given to a company that fulfils the following criteria:

i) The company is incorporated in Malaysia and at least 70% of its equity is owned by Malaysian;

ii) The company is the registered proprietor of the

Malaysian brand name used in the advertisement; and

iii) The Malaysian brand name goods are of export quality.

iv) As such, a company in the same group that is not the owner of the brand name but has incurred advertising expenditure is not eligible for the deduction.



PROPOSED

Double deduction on expenses incurred on advertising Malaysian brand names be extended to a company within the same group that has incurred the advertising expenditure, subject to the following conditions:

i) The company must be owned more than 50% by the registered proprietor of the Malaysian brand name; and

ii) The deduction can only be claimed by one company in a

year of assessment. As such, a company in the same group that is not the owner of the brand name but has incurred advertising expenditure is not eligible for the deduction.

IMPACT Continuous effort to promote Malaysian brand names. EFFECTIVE DATE Year of assessment 2007 INCOME TAX EXEMPTION FOR ISLAMIC BANKING AND TAKAFUL BUSINESS PRESENT The Government allows Islamic Banking and Takaful Business

transacted in international currencies to be conducted anywhere in Malaysia. However, such activities are currently not given any tax incentives.

PROPOSED

Full tax exemption for 10 years under the Income Tax Act 1967 be given to:

i) Islamic banks and Islamic banking units licensed under the Islamic Banking Act 1983 on income derived from Islamic banking business conducted in international currencies including transactions with Malaysian residents; and

ii) Takaful companies and Takaful units licensed under the

Takaful Act 1984 on income derived from Takaful business conducted in international currencies including transactions with Malaysian residents.

IMPACT To widen inter-linkages in the global Islamic financial markets

through the enhancement of Islamic banking and Takaful business.

EFFECTIVE DATE From year of assessment 2007 until year of assessment 2016.

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STAMP DUTY EXEMPTION ON ISLAMIC FINANCIAL INSTRUMENTS PRESENT The additional instruments that are required to be executed in

accordance with Islamic principles have been given stamp duty exemption.

PROPOSED

The 20% stamp duty exemption be given on instruments used in Islamic financing for a period of 3 years. This exemption be given after the stamp duty is exempted for purpose of tax neutrality. This incentive is subject to the condition that the Islamic financial products are approved by the Bank Negara Malaysia Syariah Advisory Council or Securities Commission Syariah Advisory Council.

IMPACT Further encourage the development of Islamic financial sector. EFFECTIVE DATE September 2, 2006 until December 31, 2009 TAX EXEMPTION FOR COMPANIES MANAGING FOREIGN ISLAMIC FUNDS PRESENT Local and foreign companies licensed by the Securities

Commission under the Approved Foreign Fund Management Status to manage foreign investors' fund are subject to income tax at a concessionary rate of 10% on the management fees received from foreign investors.

PROPOSED

Local and foreign companies managing funds of foreign investors established under the Syariah principles be given full income tax exemption on the management fees for 10 years. The Securities Commission must approve such funds.

IMPACT Further promote foreign Islamic fund management activities. EFFECTIVE DATE From year of assessment 2007 until year of assessment 2016.



EXTENDING THE SCOPE OF INDIVIDUAL TAX INCENTIVE FOR FURTHER EDUCATION PRESENT An individual tax payer pursuing courses at local institutions of

higher education in the fields of science, technical, vocational, industrial skills development, information and communication technology, accountancy and law is eligible for relief not exceeding RM5.000 per annum on the fees for such courses.

PROPOSED

The relief for individuals on study fees be extended to courses in Islamic finance approved by Bank Negara Malaysia or Securities Commission at local institutions of higher education including at the International Centre for Education in Islamic Finance (INCEIF).

IMPACT Increase the number of experts in the field of Islamic finance. EFFECTIVE DATE Year of assessment 2007 REFERENCE Section 46(1)(f) Income Tax Act, 1967 DEDUCTION ON EXPENSES TO ESTABLISH ISLAMIC STOCK BROKING COMPANY PRESENT The expenses incurred prior to the commencement of a

business including a stock broking company are not allowed as a deduction, whereas capital expenditure incurred for the purchase of assets to be used in the business is deemed incurred upon the commencement of the business and allowed as capital allowance.

PROPOSED

The expenses incurred prior to the commencement of an Islamic stock broking business be allowed as a deduction. This incentive is subject to the condition that the company must commence its business within a period of 2 years from the date of approval by the Securities Commission.

IMPACT Support the National Agenda to make Malaysia an Islamic

financial hub. EFFECTIVE DATE Applications received by the Securities Commission from

September 2, 2006 until December 31, 2009.

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EXTENSION OF TAX INCENTIVE FOR ISSUANCE OF ISLAMIC SECURITIES PRESENT The expenses incurred on the issuance of Islamic securities

based on leasing (Ijarah), progressive sales (Istisna’), profit sharing (Mudharabah) and profit and loss sharing (Musyarakah) are allowed as deduction. This incentive will expire in the year of assessment 2007.

PROPOSED

Deduction on the expenses incurred on the issuance of Islamic securities based on Ijarah, Istisna', Mudharabah and Musyarakah be extended another 3 years. This incentive be also given to all Islamic securities products approved by the Securities Commission.

IMPACT Ensure Islamic securities are more competitive. EFFECTIVE DATE From year of assessment 2008 until year of assessment 2010.

EXTENDING THE SCOPE OF TAX INCENTIVE FOR FINANCIAL INSTITUTIONS PRESENT Interest income received by non-residents from banking and

financial institutions established under the Banking and Financial Institutions Act 1989 is exempted from tax. However, profits or interest income received by non residents from banking and financial institutions established under the Islamic Banking Act 1983 or other financial institutions are subject to tax.

PROPOSED Profits or interest income received by non-residents from

financial institutions established under the Islamic Banking Act 1983, and other financial institutions approved by the Minister of Finance be exempted from tax.

IMPACT Attract more foreign funds and streamline tax treatment on

profits or interest income received from all financial institutions EFFECTIVE DATE September 2, 2006 REFERENCE Para 33 Schedule 6 Income Tax Act, 1967 REVIEW OF INCENTIVES FOR REAL ESTATE INVESTMENT TRUSTS

PRESENT Tax incentives related to Real Estate Investment Trusts (REITs) as follows:

i) Exemption of real property gains tax on gains from disposal of real properties by individuals or companies to REITs;



ii) Exemption of stamp duty on instruments of transfer of real property from individuals or companies to REITs;

iii) Income tax exemption on total income of REITs

distributed to unit holders;

iv) Imposition of tax on unit holders at their respective tax rates on income distributed by REITs. For non-resident unit holders, the tax rate imposed is at 28% and such tax is paid by REITs through the withholding tax mechanism;

v) Tax credit is given to unit holders on the

accumulated income of REITs which was subjected to tax and subsequently distributed to unit holders; and

vi) Deduction on expenditure incurred on fees for

consultancy, legal and valuation services incurred in the establishment of REITs.

PROPOSED It is proposed that:

i) Non-corporate investors especially resident and non-

resident individuals and other local entities that receive dividends from REITs listed on the Bursa Malaysia be subject to a final withholding tax of 15% for 5 years;

ii) Foreign institutional investors especially pension

funds and collective investment funds that receive dividends from REITs listed on the Bursa Malaysia be subject to a final withholding tax of 20% for 5 years;

iii) Local and foreign corporate investors be subject to

existing tax treatment and tax rates;

iv) REITs be exempted from tax on all income provided that at least 90% of their total income is distributed to the investors; and

v) If the 90% distribution condition is not complied with,

REITs will then be subject to income tax, while all their investors are eligible to claim tax credit.

IMPACT Further enhance the development of REITs and attract investment especially funds from west Asia.

EFFECTIVE DATE Proposals (i) and (ii) - January 1, 2007 Proposals (iv) and (v) - Year assessment 2007

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INCENTIVE FOR BANK TO SET UP OPERATIONS OVERSEAS PRESENT Bank is taxed on world income scope. As such, income derived

from its overseas branch or remittance from its subsidiary abroad is subject to income tax in Malaysia. However, such tax borne by that branch or subsidiary is eligible for double taxation relief.

PROPOSED The profits of newly established branches overseas or

remittances of new overseas subsidiaries be given income tax exemption for 5 years. This incentive is subject to the condition that such branch or subsidiary must commence operations within a period of 2 years from the date of approval by Bank Negara Malaysia.

IMPACT Encourage Malaysian owned banks to expand their operations

abroad. EFFECTIVE DATE From 2 September 2006 until 31 December 2009 EXTENSION OF INCENTIVE PERIOD FOR TOUR OPERATORS

PRESENT Tour operators are given the following incentives:

i) Tax exemption on income derived from the business of operating domestic tour packages participated by at least 500 inbound tourists per year; and/or

ii) Tax exemption on income derived from the business

of operating domestic tour packages participated by at least 1,200 local tourists per year.

These incentives are effective until year of assessment 2006.

PROPOSED Income tax exemption for tour operators on income derived from

the business of operating domestic tour packages participated by at least 500 inbound tourists per year or 1,200 local tourists per year be extended for another 5 years until year of assessment 2011.

IMPACT Further encourage the tourism industry.



ENHANCING TAX TREATMENT ON LOCAL LEAVE PASSAGE PRESENT Benefits in kind received by an employee are treated as income

and subject to tax. Such benefits include expenses on leave passage for the employee and his immediate family members. Expenses on fares for vacations up to 3 times per year within the country and once per year overseas are given income tax exemption. However, expenses on meals and accommodation are not exempted.

PROPOSED Tax exemption on local leave passage currently given only on expenses for fares be extended to expenses on meals and accommodation.

IMPACT Further encourage domestic tourism. EFFECTIVE DATE Year of assessment 2007 REFERENCE Section 13(1)(b)(ii)(A) Income Tax Act, 1967 SPECIAL TAX TREATMENT FOR THE PROPERTY DEVELOPMENT AND CONSTRUCTION CONTRACT BUSINESS PRESENT The gross income and adjusted income from property

development and construction contract business are ascertained on the percentage of completion method based on the directions given by the Director General in accordance with the general provisions of the Income Tax Act 1967. Such directions are provided in Public Ruling No. 3/2006.

PROPOSED Special regulations be formulated and published in the Gazette with the purpose of bringing the property development and construction contract business within the ambit of paragraph 36(a)(iv) of the Income Tax Act 1967. The salient features of the regulations are as follows:

i) Recognition of income

The gross income from a property development or construction contract business for a basis period for a year of assessment shall be determined using the percentage of completion method;

ii) Date of commencement of business

The specific date determined to be the date of commencement of a property development or construction contract business including a date based on such specific circumstances and facts acceptable to the Director General;

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iii) Date of completion of a project or contract

A property development project is deemed completed upon the date on which the Temporary Certificate of Fitness for Occupation is issued or the date on which the Certificate of Fitness for Occupation is issued, whichever is applicable. In the case of construction contract, a contract is deemed completed upon the date on which the Certificate of Practical Completion is issued or where no such Certificate is issued, the date upon which the contract work is substantially completed, whichever is the earlier;

iv) Revision of estimates

Revision of estimates of gross profit from a property development project or construction contract can be allowed where there is an increase in development or construction costs due to escalating cost of materials, a reduction in selling price or contract sum or other commercial reasons acceptable to the Director General

v) Deductibility of expenses incurred during the defect liability or warranty period

Expenses incurred during the defect liability or warranty period shall be allowed against the income of the year of assessment in which the expenses are incurred or shall be carried forward to the following years of assessment. However, the property developer or construction contractor may elect to carry back the expenses to the basis period for the year of assessment in which the project or contract is completed. Where the income in the year of completion of the project or contract is insufficient to set off the expenses incurred, the excess of the expenses is allowed to be carried back further to be deducted from the income for the immediately preceding years of assessment for the duration of the project or contract. The option to elect is available to the property developer or construction contractor for each year of assessment for the duration of the defect liability or warranty period; and



vi) Final accounts

On submission of the final accounts upon the completion of the project or contract: a. Any income from the project or contract not

previously included in the gross income shall be included in the gross income for the basis period for the year of assessment in which the project or contract is completed;

b. Any losses ascertained may be apportioned to

each year of assessment for the duration of the project or contract using the percentage of completion method; and

c. Where the actual gross profit is less than the total

estimated gross profit, the property developer or construction contractor may review the assessment for the immediate preceding year of assessment prior to the year of completion of the project or contract. However, the property developer or construction contractor may elect to review all relevant assessments by apportioning the actual gross profit to each year of assessment for the duration of the project or contract using the percentage of completion method.

IMPACT Provide certainty in the tax treatment with respect to the

computation of the gross income and adjusted income from the property development and construction contract business.

EFFECTIVE DATE Year of assessment 2006 REVIEW OF TAX RELIEF FOR THE PURCHASE OF BOOKS PRESENT An individual taxpayer is eligible for a tax relief on the purchase

of books of up to RM700 per year. PROPOSED

The tax relief on the purchase of books be increased from RM700 to RM 1,000 per year.

IMPACT Further inculcate a reading culture and promote lifelong

learning. EFFECTIVE DATE Year of assessment 2007 REFERENCE Section 46(1)(i) Income Tax Act, 1967

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EXTENDING THE SCOPE OF INCENTIVE FOR THE CAPITAL MARKET GRADUATE TRAINING SCHEME PRESENT Companies listed on the Bursa Malaysia are eligible for double

deduction on allowances paid to participants in the Securities Commission (SC) Capital Market Graduate Training Scheme, commencing from 1 October 2005 until 31 December 2008. The deduction is given for a period of 3 years from the date the scheme commences.

PROPOSED

The double deduction given on allowances paid to participants of the SC Capital Market Graduate Training Scheme be extended to unlisted companies under the supervision of the SC. Companies, both listed and unlisted, under the supervision of SC, will also be eligible for the double deduction incentive for their own in-house training schemes for graduates, which have been certified by the SC. These incentives commence from 2 September 2006 until 31 December 2008 and the deduction be given for a period of 3 years from the date the scheme commences.

IMPACT Further encourage the private sector to assist in enhancing the

employability of unemployed graduates. EFFECTIVE DATE September 2, 2006 EXTENDING THE PROMOTED AREAS PRESENT Promoted areas are the Eastern Corridor of Peninsular

Malaysia, which includes Kelantan, Terengganu, Pahang and district of Mersing in Johor as well as Sabah and Sarawak. Companies located in promoted areas are eligible for the following:

i) Pioneer Status with tax exemption of 100% of statutory income for a period of 5 years; or

ii) Investment Tax Allowance of 100% on the qualifying

capita! expenditure incurred within a period of 5 years. The allowance can be set-off against 100% of statutory income for each year of assessment:

provided the companies carry on promoted activities or promoted products;

iii) Infrastructure Allowance of 100% of qualifying capital

expenditure for companies incurring expenditure on infrastructure such as bridges, roads and ports. The allowance can be set-off against 100% of statutory income for each year of assessment; and



iv) Reinvestment Allwance of 60% of qualifying capital expenditure given to manufacturing and selected agriculture projects. The allowance can be set-off against 100% of statutory income for each year of assessment.

PROPOSED

Perlis be declared as a promoted area. Companies located in that state and undertaking promoted activities or producing promoted products be eligible for enhanced incentives presently given to the promoted areas.

IMPACT Improve the investment climate in the state of Perlis. EFFECTIVE DATE Applications received by the Malaysian Industrial Development

Authority (MIDA) from 2 September 2006. INCREASING THE LIMIT AND WIDENING THE SCOPE OF DEDUCTION ON DONATION FOR CHARITABLE ACTIVITIES PRESENT Companies which contribute cash donations to an approved

institution, organization or fund for charitable purposes are eligible for a deduction of up to 5% of their aggregate income under Section 44(6), Income Tax Act 1967. However, similar contributions made by companies towards sports activities are not given a deduction.

PROPOSED The current limit on deduction given to companies on

contributions for charitable activities be increased from 5% to 7% of the aggregate income. In addition, to support the Government's efforts to enhance attainment in sports, it is proposed that such deduction be extended to contributions made by companies towards sports activities approved by the Minister of Finance and sports bodies approved by the Commissioner of Sports. The deduction be subject to the condition that the sum of the 2 types of contributions does not exceed 7% of the companies' aggregate income.

IMPACT Encourage companies to be involved in corporate social

responsibility programmes. EFFECTIVE DATE Year of assessment 2007 REFERENCE Section 46(6), 44(11B) Income Tax Act, 1967

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TAX TREATMENT ON PERQUISITE PRESENT Perquisite or benefits in cash or in kind such as long service

award and excellent service award received by an employee from an employer are considered as income and subject to tax.

PROPOSED Tax exemption on service awards received by employees be given on contribution in cash or in kind not exceeding RM1,000 a year. Examples of such awards are long service award, safety award and excellent service award. For awards exceeding RM1,000, only the balance will be subject to tax. For the purpose of this exemption, service award:

i) Cannot be a disguised wage;

ii) Must be awarded as part of a meaningful contribution to the organisation; and

iii) Is not provided frequently to the same employee.

Given to employee's who have served at least 10 years with the same employer.

IMPACT Encourage for long services.

EFFECTIVE DATE Year of assessment 2007

REFERENCE Para 25C Section 6 Income Tax Act, 1967 ENHANCING INCENTIVE FOR SPONSORING ARTS AND CULTURAL PERFORMANCES PRESENT A company that sponsors local and foreign arts and cultural

performances approved by the Ministry of Culture, Arts and Heritage is allowed a deduction up to RM300,000 per year. However, the deduction allowed for foreign performances should not exceed RM200.000 of the total annual deduction allowed.

PROPOSED The deduction on expenditure incurred in sponsoring such

performances and shows be increased to RM500.000 per year. However, the ceiling for deductions allowed on foreign performances and shows remains at RM200.000 per year.

IMPACT Further encourage the private sector to sponsor local arts, cultural and heritage performances and shows.

EFFECTIVE DATE Year of assessment 2007

REFERENCE Section 34(6)(K) Income Tax Act, 1967



TAX TREATMENT ON PAYMENT FOR RENTAL OF SHIP PRESENT Rental payment made to a non-resident under an agreement for

participation in a pool, by a resident shipping company in Malaysia engaged in the business of transporting passenger or cargo is exempted from income tax.

PROPOSED Rental payment of ships under voyage charter, time charter or

bare boat charter to a non-resident by a resident company in Malaysia be exempted from income tax.

IMPACT Further enhance the growth of the national shipping industry. EFFECTIVE DATE September 2, 2006 INCOME TAX EXEMPTION FOR SEAFARERS WORKING ON BOARD A FOREIGN SHIP PRESENT The income of a seafarer who works on board a Malaysian ship

is exempted from tax. In this context, a "Malaysian ship" means a seagoing ship registered under the Merchant Shipping Ordinance 1952, other than a ferry, barge, tug-boat, supply vessel, crew boat, lighter, dredger, fishing boat or other similar vessel. However, the income of a seafarer employed by a Malaysian shipping company on board a foreign ship is not given tax exemption.

PROPOSED

The income of a seafarer who is employed by a Malaysian shipping company on board a foreign ship chartered by the employer be given tax exemption.

IMPACT Streamline the tax treatment. EFFECTIVE DATE Year of assessment 2007 REFERENCE Para 34(1) Section 6 Income Tax Act, 1967

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SECTION D

SUMMARY OF AMENDMENTS TO INDIRECT TAXATION

ESTABLISHMENT OF CUSTOMS APPEAL TRIBUNAL

PRESENT Disputes pertaining to technical and administrative decisions by the Royal Malaysian Customs may be appealed to the Minister of Finance. These disputes are mostly related to classification and valuation of goods and taxable services.

PROPOSED An independent Customs Appeal Tribunal (CAT) be established to

decide on appeals against the decisions of the Director General of Customs pertaining to matters under the Customs Act 1967, Sales Tax Act 1972, Service Tax Act 1975 and Excise Act 1976. The main features of CAT are as follows: i. the Tribunal shall consist of not less than three (3) members

of which the Chairman shall be from the judicial and legal service and other members with experience in taxation or custom matters.

ii. appeal against the decision of the Director General of Customs shall be made within 30 days from the date of notification of that decision; and

iii. the decision of the Tribunal shall be final except on such cases where there shall be further right of appeal to the High Court or Federal Court.

IMPACT To further enhance transparency in tax administration. EFFECTIVE DATE 1 March 2007



INTRODUCTION OF CUSTOMS RULING

PRESENT Any person can apply to the Royal Malaysian Customs (RMC) in respect of the classification or valuation of goods or services in order to determine the class and duty of such goods or the tax treatment of such services. These rulings are issued on an ad hoc basis and their applications are not comprehensive which have caused inconsistencies in their implementation.

PROPOSED Customs Ruling be introduced under the Customs Act 1967, Sales

Tax Act 1972, Service Tax Act 1975 and Excise Act 1976. The Ruling issued by the RMC and agreed by the applicant shall be legally binding between both parties for a specific period of time. The main features of Customs Ruling to be introduced are as follows:

i. application for Customs Ruling can be made with respect to classification of goods, determination of taxable services and the principles of determination of value of goods and services.

ii. application to be made in writing together with sufficient facts and a prescribed fee;

iii. application may be made before the goods are imported or the services are provided upon which RMC will issue an advance ruling;

iv. the Customs Ruling is only applicable to the applicant; and

v. the Director General of Customs may amend, modify or revoke a Ruling if there is any error in the Ruling due to typing or wrong reference or if the Ruling is based on an error of fact as in the case of the use of incomplete analysis done on a product or if there is a change in law which can result in a new tariff structure.

IMPACT To provide the business sector with the elements of certainty and

predictability in planning their business activities. EFFECTIVE DATE 1 January 2007

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REVIEW OF ELIGIBILITY PERIOD TO CLAIM REFUND OF SALES TAX AND SERVICE TAX RELATED TO BAD DEBTS

PRESENT Sales tax and service tax paid by the licensee could be refunded if the debts becomes bad provided the following conditions are met :

i) the licensee is unable to collect the debt from the client after a period of 12 months from the date of payment of the tax; or

ii) the debtor had been adjudged a bankrupt under Bankruptcy Act 1967; or

iii) the debtor had been placed under receivership or official assignee; or

iv) the debtor had been ordered by the court to wind up; or v) the licensee had filed a claim in court to recover the tax

or the licensee had initiated action for the client to be adjudged a bankrupt; and

vi) payments for goods sold have been written off as bad debts in the account of the licensee.

PROPOSED It is proposed that eligibility to refund of sales tax and service tax

related to bad debts be shortened from 12 months to 6 months from the date the tax is paid. The amendments on the above criteria (i) and (vi) are as follows:

a) criterion (i) – the period to be shortened from 12 months to 6 months

b) criterion (vi) – introduce a new condition where doubtful debts have been provided in the accounts of the licensee as an alternative to the existing condition of writing off the bad debts

IMPACT To strengthen company’s cash flow position and to reduce cost of

doing business EFFECTIVE DATE 1 January 2007



REVIEW OF COMPOUND OR FINE FOR UNDER DECLARATION AND SMUGGLING OF HIGH DUTY GOODS

PRESENT Offences of under declaration of the value of goods and smuggling are punishable as follows:

i) compound of not more than 10 times of the duty or value of the goods; or

ii) a fine if charged in court and convicted, other than

imprisonment sentence, can be imposed as follows:

a. in the case of dutiable goods: i. for the first offence, a fine of not less than 10 times the amount of duty or RM50,000, whichever is the lesser amount and not more than 20 times the amount of the duty or RM100,000, whichever is the greater amount; and

ii. for the second or any subsequent offence, a fine of not less than 10 times the amount of duty or RM100,000, whichever is the lesser amount and not more than 40 times the amount of the duty or RM500,000, whichever is the greater amount.

b. in the case of prohibited goods:

i. for the first offence, a fine of not less than 10 times the value of the goods or RM50,000, whichever is the lesser amount and not more than 20 times the value of the goods or RM100,000, whichever is the greater amount; and

ii. for the second or any subsequent offence, a fine of not less than 10 times the value of the goods or RM100,000, whichever is the lesser amount and not more than 40 times the value of the goods or RM500,000, whichever is the greater amount.

PROPOSED The punishments are as follows:

i) the minimum compound imposed be 5 times of the total duty; and

ii) the fine imposed be in line with the maximum compound

and updated as follows:

a. in the case of dutiable goods: i. for the first offence, a fine of not less than 10 times the amount of duty and not more than 20 times the amount of duty; and

ii. for a second or any subsequent offence, a fine of not less than 20 times the amount of

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duty and not more than 40 times the amount of duty.

b. in the case of prohibited goods:

i. for the first offence, a fine of not less than 10 times the value of the goods and not more than 20 times the value of the goods; and

ii. for a second or any subsequent offence, a fine of not less than 20 times the value of the goods and not more than 40 times the value of the goods.

IMPACT To overcome the problem of under declaration of the value of

goods and smuggling of high duty goods particularly cars, cigarettes and liquor.

EFFECTIVE DATE 1 January 2007

ADDITIONAL INCENTIVE FOR TOUR OPERATORS

PRESENT Tour operators are given full excise duty exemption on national cars used as hire and drive cars.

PROPOSED Tour operators are given 50% excise duty exemption on locally

assembled 4WD vehicles. IMPACT To enable tourists to explore challenging destinations. EFFECTIVE DATE 2 September 2006



REVIEW OF EXCISE DUTY ON CIGARETTES, TOBACCO PRODUCTS AND ALCOHOLIC BEVERAGES

PRESENT Tax structure on cigarettes, tobacco products and alcoholic beverages with alcohol content of more than 40% is as follows :

Products Excise Duty

Cigarettes, cheroots, cigars and cigarillos containing tobacco or tobacco substitutes

RM110/kg + 20% or

11cent/stick + 20%

Tobacco products RM14/kg + 5% and

RM25/kg + 5%

Beedies RM7/kg + 5%

Brandy, whisky, gin, vodka and rum RM25/litre + 15% PROPOSED Products Excise Duty

Cigarettes, cheroots, cigars and cigarillos containing tobacco or tobacco substitutes

RM120/kg + 20% or

12cent/stick + 20%

Tobacco products RM15/kg + 5% and

RM27/kg + 5%

Beedies RM7.50/kg + 5%

Brandy, whisky, gin, vodka and rum RM30/litre + 15% IMPACT Promote a healthy life style and to curb social ills due to

addiction to excessive drinking and smoking. EFFECTIVE DATE 1 September 2006, 4.00 pm.

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SECTION E

SUMMARY OF BUSINESS OPPORTUNITIES AND OTHER INCENTIVES

I. FUNDS AND SCHEMES UNDER MINISTRIES AND AGENCIES

Ministry of Entrepreneur and Co-operative Development 1. Franchise Development Assistance Scheme

Purpose To assist and provide incentive to individual entrepreneurs and Malaysian companies to franchise its product or business locally or overseas.

Ministry of Science, Technology and innovations 2. Industry Research And Development Grant Scheme (IGS)

Purpose To encourage Malaysian companies to be more innovative in using and adapting to the existing technologies and creating new technologies, products and processes, as well as promoting closer cooperation between private and public sector. The scheme would facilitate Malaysian companies to establish strategic global and regional linkages in R & D to enhance indigenous technology development.

Ministry of Youth and Sport 3. Trust Fund for Youth Development

Purpose To assist youth to undertake business venture

Bank Negara Malaysia 4. New Entrepreneurs Fund 2

Purpose To help stimulate the growth of small and medium-sized Bumiputera enterprises



5. Fund for Small and Medium Industries 2

Purpose To promote SME activities in the export and domestic oriented sectors

6. Fund for Food

Purpose To increase of food production in Malaysia

7. Bumiputera Entrepreneurs Project Fund

Purpose To provide financing to Bumiputera entrepreneurs who have been awarded contracts/projects by the Government, Government-related agencies, statutory bodies and reputable private/public companies

8. Rehabilitation Fund for Small Businesses

Purpose To assist viable SMEs that are constrained by non performing loans (NPLs) through Small Debt Restructuring Scheme (SDRS) by facilitating their request for loan restructuring and arranging for new financial institutions.

Small and Medium Industries Development Corporation (SMIDEC) 9. Special Assistance Scheme for Women Entrepreneurs

Purpose To allow greater access to financing for women entrepreneurs This scheme is more flexible and accessible to women entrepreneurs

10. Industrial Technical Assistance Fund 1 (Business planning, technology and

market development scheme)

Purpose To assist small and medium enterprises for :

• Market feasibility studies

• Technology feasibility studies

• Business planning

• Domestic and export market strategy

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11. Industrial Technical Assistance Fund 2 (Improving and upgrading existing product, product design and processes scheme)

Purpose Financing SMEs for :

• Improvement and upgrading of existing product

• Improvement and upgrading existing product design

• Improvement and upgrading of existing process

12. Industrial Technical Assistance Fund 3 (Productivity and quality improvement and

to achieve international quality standards and certification scheme)

Purpose Financing SMEs for :

• Productivity and quality improvement

• Productivity and quality improvement based on customer’s requirement

• Quality Development System (5S, Quality Control Circle (QCC), Total Preventive maintenance (TPM))

• Productivity and quality system certification

• Quality series

• Occupational and safety measures

• HACCP, HALAL and other product quality certification

13. Soft Loan Package for Small and Medium Enterprises

Purpose The package offers assistance to small and medium enterprises in modernizing and automating their manufacturing operations

14. Soft Loan for Factory Relocation

Purpose To assist small and medium entrepreneurs to relocate their premises from operating in an unlicensed factories to an approved industrial site as well as to acquire assets that will enhance their capabilities to obtain other financial assistance

Bank Perusahaan Kecil Dan Sederhana Malaysia Berhad (SME Bank) 15. Seed Capital Scheme (Batik and Craft)

Purpose To promote Malaysian Batik and craft industry by providing financing to Bumiputera batik and craft operator

16. Fiction Film Financing Scheme

Purpose To encourage Malaysian film company to produce successful fiction film for local or international market



17. Rural Economy Financing Scheme

Purpose To assist Bumiputera entrepreneurs operating in rural areas

18. Rural Economy Financing Scheme for Indian Community

Purpose To assist rural Indian community entrepreneurs involves in pottery business to obtain financing

19. Graduate Entrepreneur Fund

Purpose To encourage graduates to participate and venture into business with potential to expand

20. Special Fund for Tourism 2

Purpose To support Government efforts to develop tourism industry

21. Terengganu State Entrepreneurs Fund

Purpose To develop entrepreneurs in the state of Terengganu

22. Tanmiah Scheme 1

Purpose To assist bumiputera’s company to enhance their status in manufacturing and services industry

23. Tanmiah Scheme 2 (Strategic industry scheme)

Purpose To enhance the viability of the factory project undertaken by increasing Bumiputera’s participation in wholesale and distribution activities in domestic and international market

Bank Industri & Teknologi Malaysia Berhad 24. New Shipping Fund

Purpose To stimulate the growth of shipping industry and shipyard

25. High Technology Fund

Purpose To support the development of high technology industry

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26. Tourism Infrastructure Fund

Purpose To support Government efforts to develop tourism industry

Bank Pertanian Malaysia 27. Financing Scheme for Bumiputera Trade & Industry Community

Purpose To encourage the creation pf bumiputera entrepreneurs in agriculture sector, particularly in production of food crop, processing and marketing of agriculture products except rubber, oil palm, tobacco, cocoa, pepper, forestry, drinks and vegetable oil

28. Financing Scheme for Agricultural Mechanism & Automation

Purpose To modernize and commercialise agricultural sector through the usage of machinery and automation tools in production, processing and marketing of agricultural products except for rubber, palm oil, tobacco, cocoa, pepper, forestry, soft drink and vegetable oil.

Perbadanan Nasional Berhad 29. PNS Equity Investment Scheme

Purpose To develop and increase the number of medium class Bumiputera entrepreneurs through financial assistance or SME equity financing

30. PNS Franchise Investment Scheme

Purpose To develop and increase the number of Middle-Level Bumiputera Enterpreneurs (MLBE) in franchise businesses through PNS equity investment scheme

31. PNS Franchisee Financing Scheme

Purpose To develop and increase the number of Middle-Level Bumiputera Entrepreneurs (MLBE) in franchise businesses through financial assistance for purposes of business expansion and starting-up franchise companies



Perbadanan Usahawan Nasional Berhad (PUNB) 32. Bumiputera Entrepreneurs Retail Project Fund

Purpose To increase and upgrade Bumiputera entrepreneurs participation in the retail business. PUNB provides capital up to 30% or loan up to 90% of total project cost based on Islamic financing

Majlis Amanah Rakyat (MARA) 33. MARA Business Financing Scheme

Purpose To increase the participation of Bumiputera entrepreneurs in the small and medium industries

Malaysian Technology Development Corporation (MTDC) 34. Technology Acquisition Fund for Women

Purpose To provide greater access to financing for women entrepreneurs involve in the technology industry. The financing is in the form of grant

35. Commercialisation of R&D Fund (Phase 1) (market survey and research)

Purpose To provide assistance in evaluating the market potential of certain proposed product / process for purpose of commercialisation

36. Commercialisation of R&D Fund (Phase 2) (product / process design and

development)

Purpose To facilitate the design and physical development of prototypes into products / processes

37. Commercialisation of R&D Fund (Phase 3) (standards and regulatory compliance

and intellectual property protection)

Purpose To facilitate commercialization of products / processes through testing for compliance with standards and regulations as well as intellectual property protection

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38. Commercialisation of R&D Fund (Phase 4) (Demonstrations of technology)

Purpose To provide exposure for indigenous technology to potential market and to expedite technology roll-out by drawing interest from potential investors.

39. Technology Acquisition Fund

Purpose To promote technology upgrading through the introduction and utilization of modern and efficient technology in the manufacturing and physical development of existing and new products or processes as well as to enhance the competitiveness level of firms to enable them to compete globally

Multimedia Development Corporation Sdn Bhd (MDC) 40. Multimedia Super Corridor Research and Development Grant Scheme

Purpose To assist local companies or joint venture companies in developing multimedia technologies and applications which would contribute to the overall development of Multimedia Super Corridor (MNC).

MIMOS Berhad 41. Demonstrator Application Grant Scheme

Purpose To develop the culture, social and economic progress of Malaysians through innovation use the information and communication technologies (ICT) and to build an integrated network of electronic community which utilized multimedia and ICT.

Bank Kerjasama Rakyat Malaysia Berhad 42. Rural Economy Financing Scheme

Purpose To assist Bumiputera entrepreneurs operating in rural areas.

Malaysian Venture Capital Management Berhad 43. Venture Capital Financing

Purpose To provide venture capital financing.



Yayasan Tekun Nasional (YTN) 44. Fund for Economic Business Venture

Purpose To provide financing for additional capital for the small entrepreneurs.

Amanah Ikhtiar Malaysia (AIM) 45. Initiative Financing Scheme

Purpose To reduce the poverty rate in Malaysia by providing financing to poor household in rural area to undertake any viable economic activities which would increase their household income.

Credit Guarantee Corporation Malaysia Berhad (CGC) 46. Direct Access Guarantee Scheme

Purpose Enable entrepreneurs to obtain guarantee cover directly from CGC for the needed financing from banking institution.

47. Franchise Financing Scheme

Purpose Assist entrepreneurs to obtain financing in franchising business. 48. Small Entrepreneurs Guarantee Scheme

Purpose To facilitate small entrepreneur with viable business venture to obtain guarantee cover for credit.

49. New Principal Guarantee Scheme

Purpose To facilitate small entrepreneur with viable business venture to obtain guarantee cover for credit facility up to RM10 million.

50. Islamic Banking Guarantee Scheme

Purpose To provide guarantee for loans granted by commercial banks and finance companies under the Islamic banking principle for manufacturing and priority sector.

51. Flexi Guarantee Scheme

Purpose Guaranteeing loan under the Fund for Small and Medium Industries 2, New Entrepreneurs Fund 2 and Rehabilitation Fund for Small Businesses which fund are managed by Bank Negara Malaysia.

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II. OTHER BUSINESS OPPORTUNITIES AND INCENTIVES (As proposed in Budget 2007)

• Private Sector

Purpose To stimulate private investment

Mechanism (i) By implementation of Private Financing initiatives (PFI)

(ii) Financial support to enhance viability of projects identified by private entities such as by providing land and basic infrastructures, sponsorship and, purchase and lease of property, to enhance viability.

RM20 billion and 5 billion fund is allocated for PFI and PFI Facilitation Fund, respectively.

Who will Benefit

Private companies, especially contractors

• Agriculture Sector

Purpose To transform agriculture sector into a modern, commercial and competitive.

Mechanism (i) by creation of RM3.6 billion comprising Fund for

Food, Non-Food Agriculture Scheme, livestock projects and aquaculture industries;

(ii) Encouraging business partnership between entrepreneur and Co-operatives; and

(iii) Venture capital financing in area of new technology intensive agriculture projects.

Who will Benefit

Private business entities and co-orperatives

• Bio-technology Sector

Purpose To put greater emphasis on bio-technology as a new source of growth

Mechanism (i) Allocation of fund amounting to RM210 million via Biotechnology Commercialisation Fund and R&D initiatives;

(ii) Establishment of Bio Innovation Centre for commercialization and bio-manufacturing activities

Who will Benefit

Private business entities which are involved in bio-technology.



• Halal Industry

Purpose To promote Malaysian global halal industry

Mechanism (i) establishment of Halal Industry Development Corporation that will coordinate and ensure integration and comprehensive development;

(ii) setting up halal parks throughout Malaysia;

with a total of RM95 million Fund.

Who will Benefit

Private business entities.

• ICT Development

Purpose To act as a catalyst in the implementation of national economic development plans

Mechanism By promoting shared services and outsourcing (SSO) in logistics and financial services.

Who will Benefit

SSO-based private business entities

• Research & Development

Purpose To promote R&D and commercialisation of R&D findings

Mechanism (i) Establishment of Science and Techno Funds; (ii) MSC Grand Scheme

Who will Benefit

Research agencies and private business entities

• Investment Abroad

Purpose To encourage domestic companies to invest abroad

Mechanism (i) Facilities offered by EXIM Bank; (ii) Establishment of Overseas Investment Fund for

start-up costs

Who will Benefit

Private business entities and bankers.

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• Tourism

Purpose To boost foreign tourists and further promoting tourism in Malaysia

Mechanism (i) organise Visit Malaysia Year 2007 with RM149

million fund allocation ; (ii) upgrade tourist facilities and develop new tourism

products

Who will Benefit

Tour operators and tourism-related business entities

• Construction Sector

Purpose To turnaround and accelerate growth in the construction sector Mechanism (i) Higher allocation i.e. RM2.75 billion through

construction of infrastructure facilities, housing and buildings, roads, quarters and other facilities;

(ii) Maintenance of existing infrastructures and public amenities

Who will Benefit

Private business entities which are involved in construction.

• Reducing Regional Disparity

Purpose To reduce growth imbalances between regions and between urban and rural areas

Mechanism (i) development of Northern Economic Corridor, East

Coast Corridor and Southern Johor Economic Region as business operation;

(ii) declaration of Perlis as promoted area

Who will Benefit

Private business entities relating to commercialised agriculture, petrochemicals, handicrafts, tourism, private higher education and healthcare.



• Environmental Preservation

Purpose To promote environmental preservation Mechanism (i) By providing an allocation of RM179 million to

improve mini incinerators and upgrade present solid waste disposal sites;

(ii) Develop Bio-diesel Industry Fund amounting to RM500 million

Who will Benefit

Private business entities relating to solid waste management and bio-diesel.

• Arts, Culture and Heritage

Purpose To inculcate greater appreciation of the arts and culture Mechanism Establishment of Creative Industry Development Fund of

RM100 million

Who will Benefit

Private business entities relating to creative industry

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SECTION F

SYNOPSIS AND COMPARISON

(Period under review 2000 to 2007)

PERSONAL TAX

Tax Rate Income Tax i) Resident 2000-2001 Chargeable income < RM2,500=

0% Chargeable income > RM150,000 = 29% Other income group = 1% - 28%

2002-2006 Chargeable income < RM2,500= 0% Chargeable income > RM250,000 = 28% Other income group = 1% - 27%

2007 No changes ii) Non-resident 2000-2001 29% 2002-2006 28% 2007 No changes Personal relief a. Self relief 2000-2006 RM8,000 2007 No changes b. Husband relief (for husband with no

income) 2000

2001-2006 Nil RM3,000

2007 No changes c. Disabled person - Taxpayer

- Spouse

2000-2004 2005-2006

2007

2000-2004 2005-2006

2007

RM5,000 RM6,000 No changes RM2,500 RM3,500 No changes



d. Normal Children below 18 years old

2000-2003 2004-2006

2007

RM800 each RM1,000 each No changes

e.

Unmarried child age above 18 & studying in higher learning institutions i. Overseas Institutions of higher learning

2000-2004 2005 2006

2007

2 x Normal rate Normal rate 4 x Normal rate at a recognised institution of higher learning abroad. No changes

ii. Local Institutions of higher learning 2000-2006

2007 4 x Normal rate No changes

f. Disabled child (unmarried) 2000-2005

2006

2007

RM5,000 Additional RM4,000 to disabled child studying in higher learning institutions at diploma level and above in Malaysia or at degree level and above outside Malaysia. No changes

g. Annuity purchased through EPF 2000-2006 Maximum RM1,000 2007 No changes h. Life insurance premiums/ Approved fund contributions - Taxpayer (max)

2000-2004 2005-2006

2007

RM5,000 RM6,000 No changes

i. Medical and Education Insurance 2000-2006 Increased to RM3,000 2007 No changes

j. Fee for education in scientific, technology or vocational fields in Malaysia

2000 Maximum RM2,000

2001-2005 Maximum RM5,000 and field extended to ICT

2006 Extended to professional courses, accountancy and law undertaken at recognised institutions. The eligible professional fields are to be approved by the Ministry of Finance.

2007 Extended to courses in Islamic finance approved by Bank Negara or Securities Commission.

k. Purchases of books, journals & magazines 2000 2001-2004

Nil Up to RM500

2005-2006 2007

Up to RM700 Up to RM1,000

l. Complete medical examination 2000 2001-2006

Nil Up to RM500

2007 No changes

m. Purchase of computer 2007 Up to RM3,000 once in 3 years per taxpayers.

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Rebate a. Entitlement 2000

2001-2006 Chargeable income < RM10,000 Chargeable income < RM35,000

2007 No changes b. Tax payer 2000 RM110 2001-2006 RM350 2007 No changes c. Wife (Joint assessment) 2000 RM60 2001-2006 RM350 2007 No changes d. Husband (Joint assessment) 2000

2001-2006 Nil RM350

2007 No changes e. Tax rebate for personal computer (PC) 2000-2004 RM400 once in 5 years per family 2005-2006 RM500 once in 5 years per family 2007 Amended as tax relief Income exempted from income tax: a. Income from musical composition 2000-2006 Maximum RM20,000 2007 No changes

b.Income derived by non-residents performing in art and cultural shows, exhibitions, games and competitions held at the National Sports Complex, National Theatre, National Art Gallery and Petronas Philharmonic Hall

2000-2006 2007

Exempted No changes

c. Income derived by organisers of sports, cultural shows, art exhibition and carnivals involving foreign participation held at the National Sports Complex, National Theatre, National Art Gallery and Petronas Philharmonic Hall

2000-2006 2007

Tax exemption of 50% No changes

d.Income derived by drivers of “Formula One” and motor racing internationally recognised and held in Malaysia

2000-2006 2007

Exempted No changes

e. Income derived by organisers of “Formula

One” and motor racing internationally recognised and held in Malaysia

2000-2006 2007

50% of statutory income exempted No changes

f. Leave passage 2000-2006 Exemption for overseas trip is

restricted to RM3,000.



Allowable expenses: Fares. Non allowable expenses: Meals and accommodation.

2007 Exemption is extended to meals and accommodation.

g.Statutory income from provision of chartering services of luxury yacht departing from and ending at ports in Malaysia

2000-2001 2001-2006

2007

Taxable w.e.f. 20.10.2001 exempted for 5 years No changes

h. Computer given by employer 2000

2001-2003 Taxable Exempted

2004-2006 2007

Taxable No changes

i. Royalty received by non-resident franchisors from franchised education scheme approved by the Ministry of Education.

Royalty received by resident on royalty from art artisticistic works.

2000-2001 2002-2005

2006

2006

2007

Taxable Exempted w.e.f 20.10.2001. Tax exempted from withholding tax for a period of 5 years. Tax exemption on royalty to be increased to RM10,000 a year. No changes

j. Export of qualifying services by resident 2000-2001 Exemption equivalent to 10% of

increased in export value 2002-2006

Exemption equivalent to 50% of the increased in export value

2007 No changes

k. Rental of ISO containers received by non-residents from shipping companies in Malaysia

2000-2001 2002-2006

No exemption Exempted from income tax w.e.f 20.10.2001

2007 Exemptions included rental payment of ships under voyage charter, time charter and/or bare boat charter w.e.f 02.09.2006

l. Compensation for loss of employment 2000-2002 Exempted from income tax up to RM4,000 per complete year of service

2003-2006 Exemption limit increase to RM6,000

2007 No changes m. Fees or honorarium received by

lecturers/experts from LAN (not from official duties)

2000-2003 2004-2006

2007

Taxable Exempted No changes

n. Honorarium or royalty for researchers to commercialise research finding

2000-2003 2004-2006

2007


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o. Interest from MERDEKA bond 2000-2003 Taxable 2004-2006 Exempted 2007 No changes p. Income from foreign source remitted by a resident

2000-2003 2004-2006

Taxable Exempted

2007 No changes q. Interest income derived by non-resident

companies from investments in islamic securities and debentures and Government Securities

2000-2004 2005-2006

2007


r. Chargeable income distributed to unit

holders of REIT or PTF approved by Securities Commisioner

2000-2004 2005-2006

2007


s. Retirement Gratuities at retirement age below 55

2000-2004 2005-2006

Taxable up to RM6,000 per complete year of service

2007 No changes t. Income from Islamic banking and takaful business

2000-2006 2007

Taxable Exempted (w.e.f YA 2007 until YA 2016)

u. Local and foreign companies managing

funds of foreign investors established under Shariah principles.

2000-2006 2007

Taxable Exempted (w.e.f YA 2007 until YA 2016)

v. Income tax exemption for seafarers working on board a foreign ship

2007 Tax exemption for income of a seafarer who is employed by a Malaysia shipping company on board a foreign ship chartered by the employer

w. Tax treatment for perquisite 2007 Tax exemption for award received

by employees in cash or in kind up to RM1,000



CORPORATE TAX Tax Rates Income tax 2000-2002 28% 2003 Companies with paid up capital not more

than RM2.5 million – Chargeable income of first RM100,000 = 20% and the balance is taxed at 28%

2004-2006 Chargeable Income up to RM500,000 is taxed at 20% and the balance is tax at 28%

2007 27% (normal tax rate) (YA 2008 will be reduced to 26%)

Assessment system 2000 Current year basis. 2001-2006 Self assessment system / Current year basis 2007 No changes Insurance Company Incentive for mergers 2000-2006 50% of accumulates losses of the acquired

companies be allowed as deduction in form of tax credit to be utilised within 2 years.

2007 No changes Stock broking firms Incentive for mergers 2000-2006 50% of accumulates losses of the acquired

companies be allowed as deduction in form of tax credit to be utilised within 2 years.

2007 No changes Banking industries

Interest on loan 2000 Exempted if achieve at least 10% growth in net lending

2001-2006 Taxable 2007 No changes

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Deductible Expenses Donation to seriously ill person deposited into an account approved by IRB.

2000-2001 2002-2006

2007

Not deductible Deductible No changes

Donation to approved institution 2000 Fully deductible from aggregate income. 2001-2006 Deduction restricted to 5% of aggregate

income 2007 Deduction restricted to 7% of aggregate

income Sponsoring arts and cultural activities approved by Ministry of Cultural Arts performed in Malaysia

2000 2001-2003

No deduction Deductible up to RM 200,000

2004-2006 Deductible up to RM300,000 provided RM100,000 is paid to sponsor performance by local artists

2007 Deduction increase up to RM500,000 Hire of motor vehicle (other than commercial vehicle)

2000-2001 2002-2006

Restricted to RM50,000 Restricted to RM100,000 if on the road price is not more than RM150,000 and brand new

2007 No changes Bonus 2000-2001 Tax deduction is restricted to 2 months

bonus. 2002-2006 Restriction abolished

2007 No changes

Interest in suspense for bank and finance companies

2000-2006

Full deductions

2007 No changes Expenses on corporate debt restructuring scheme

2000-2001 2002

No deduction Deductible if the scheme is completed between 01.01.2002 – 30.06.2002

2003-2006 Not Deductible 2007 No changes New computer given to employees 2000 Not deductible 2001-2003 Deductible 2004-2006 Not deductible 2007 No changes Contributions to projects promoting information Communication Technology (ICT)

2000 2001-2006

2007

No deduction Deductible No changes



Expenses to obtain halal and quality certifications

2000 2001-2004

No deduction Single deduction

2005-2006 Double deduction on expenses in obtaining quality systems and standards certification as well as halal certification from JAKIM and obtaining international quality systems and standards certification

2007 No changes Scholarship. 2000

2001-2006 Nil Deductible for students who is: i. Attending full time course in local

higher learning institution ii. Without any income iii. Guardian monthly income <RM5,000.

2007 No changes

Payments for: i. Registration of patents, trade

marks and product licensing overseas

ii. Hotel accommodation for a maximum of 3 nights to companies providing hospitality to potential importers invited to Malaysia as a follow-up to trade and investment missions organised by government agencies or industrial and trade associations

2000-2001 2002-2006

2007

No deduction Deductible No changes

Expenses to establish Islamic stock broking company

2000-2006 2007

No deduction Allowable for company that commence its business within a period of 2 years from the date of approval by the Securities Commission.

Expenses incurred in the issuance of Islamic Private Debt Securities (IPDS).

2000-2002 2003-2006

2007

Not deductible Deductible (from YA2003 to YA 2007) No changes

Entertainment incurred in relation to business

2000-2003 Not deductible

2004-2006 i. Full deduction for promotional purposes.

ii. 50% for others purposes 2007 No changes

Incorporation expenses 2000-2003 Allowable for company with authorized share capital not exceeding RM250,000

2004-2006 Allowable for company with authorized share capital not exceeding RM2.5million

2007 No changes

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Audit fee 2006 The expenses incurred on audit fees by companies be deemed as allowable expenses.

2007 No changes

Double Deduction

Freight cost from Sabah & Sarawak to Peninsular

2000-2006 2007

Double deduction No changes

Design of packaging for exports products

2000 2001-2006

No incentive Double deduction

2007 No changes

Expenses incurred for advertising Malaysian brand names registered overseas and professional fees paid to companies promoting Malaysian brand names.

2000-2001 2002-2006

2007

No incentives Double deduction (must be owner of the brand name). Extended to a company within same group subject to: i. Company owned more than 50% by

registered proprietor of Malaysian brand name; and

ii. Can only be claimed by one company in year of assessment.

Promotion of export of goods i. Participation in virtual trade

shows ii. Participation in trade portals

for the promotion of local product

iii. Cost of maintaining warehouses overseas

2000-2002 2003-2006

2007

No incentives Double deduction No changes

Promotion of export of services i. Feasibility studies for overseas

projects identified for the purpose of tender

ii. Participation in trade or industrial exhibitions in the country or overseas

iii. Participation in exhibition held in Malaysian Permanent Trade and Exhibition Centres overseas

2000-2002 2003-2006

2007

No incentives Double deduction No changes

Promotion of export of professional services (Legal, accounting, architectural, engineering and integrated engineering, medical and dental)

2000-2002 2003-2004 2005-2006

No incentives Double deduction Double deduction for expenses incurred in preparing architectural & engineering models, perspective drawings & 3-D animations for participating in competitions at international level

2007 No changes



Employment of unemployed graduates registered with Economic Planning Unit

2000-2003 2004-2005

2006

Single deduction Double deduction Double deduction be given for a period of 3 years to listed companies on the allowances paid to participants of Unemployed Graduated Training Programme endorsed by the Securities Commission.

2007 Extended to unlisted companies for double deduction under the supervision of the Securities Commission w.e.f 02.09.2006

Expenses to obtain halal & quality certification

2000 2001-2004 2005-2006

No deduction Single deduction Double deduction

2007 No changes Capital Allowance Private motor vehicle 1999-2000 Qualifying expenditure is restricted to

RM50,000 2001-2006 Qualifying expenditure is increased to

RM100,000 (provided on-the-road price < RM150,000 w.e.f. 28.10.2000)

2007 No changes Class of Plant & Machinery 2000 Categorised into 3 classes and 3 rates

Initial allowances 20% Annual allowances 10%, 14% & 20% Excluding certain type of plant & machinery such as computers & pollution control equipment

2001-2006 Accelerated Capital Allowance for companies provide services in conserve energy and recycling activities.

2007 No changes Proprietary right 2000-2001 No allowance 2002-2006 20% per year 2007 No changes Agricultural sector and equipment to maintain quality of power supply

2000-2004 Initial allowance @ 20% Annual allowance @ 10% to 20%

2005-2006 Initial allowance @ 20% Annual allowance @ 40%

2007 No changes Unabsorbed capital allowances

2006 Unabsorbed capital allowances of a company be not allowed to be carried forward in the event there is a change of more than 50% in its shareholdings.

2007 No changes

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Capital allowances on small value assets

2006 The CA on qualifying expenditure on such assets be given 100% allowances for assets value not exceed RM1,000 but assets are capped at RM10,000.

2007 No changes Industrial Building Allowance

Initial Allowance Purchased building 2000-2001 No allowance 2002-2006 10% 2007 No changes Annual Allowance (A.A) Generally: Self constructed 2000-2001 2% 2002-2006 3% 2007 No changes Purchased building 2000-2001 1/ (50 years+ year in which building was

constructed – year building was purchased + 1 year)

2002-2006 3% 2007 No changes Building used as old folks care centre approved by Social Welfare Department

2000-2001 2002-2006

2007

Nil 10% No changes

Building constructed on build-lease-transfer basis and leased to Government

2000-2005 2006 2007

Prescribed as industrial building. A.A=6% No changes No changes

Hotel building registered with Ministry of Culture, Arts &Tourism

2000-2001 2002-2006

Not an industrial building Prescribed as industrial building

2007 No changes Airport and Motor Racing Circuit 2000 Not an industrial building 2001-2006 Prescribe as industrial building 2007 No changes Qualifying Expenditure For purchased Industrial Building Allowance (IBA)

2000-2004 Based on the Residual Value of vendor construction cost

2005 Based on the purchase price 2006 IBA for a period of 10 years be given to

owners of new buildings occupied by MSC status companies in Cyberjaya.

2007 No changes



WITHHOLDING TAX Technical services rendered outside Malaysia

2000-2001

Subject to 10% withholding tax

2002-2006 Exempted from withholding tax (w.e.f. 21.09.2002)

2007 No changes Payment to non-resident contractor 2000-2001 Subject to 15%+5% withholding tax 2002-2006

2007

Subject to 10%+3% withholding tax (w.e.f. 21.09.2002) No changes

Penalty of withholding tax 2000-2006 10% penalty on withholding tax be imposed on the total payment made to a non-resident.

2007 10% penalty on withholding tax be imposed on the amount of unpaid tax.

TAX ON COOPERATIVES a.Income Tax Rate 2000-2001 Chargeable income of first RM10,000 =

0% Chargeable income > RM500,000 = 29% Other income group = 1% - 27%

2002-2006 Chargeable income of first RM20,000 = 0% Chargeable income > RM500,000 = 28% Other income group = 1% - 26%

2007 No changes b.S65A (b) Relief 2000-2006 8% of member’s fund 2007 No changes c.Exemption from income tax 2000-2006 If member’s fund not > RM750,000 2007 No changes TRADE ASSOCIATION Exemption from income tax 2000-2004 Statutory income from members’

subscription fees are exempted from income tax determined by the formula:- Subscription fees x Statutory income Gross income

2005-2006 Statutory income from members’ subscription fees that is exempted, be calculated according to the attributable method by taking into consideration actual expenditure incurred

2007 No changes

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TAX TREATMENT FOR CHARITABLE ORGANISATIONS - Condition for income tax exemption

2000-2004

Must has 70% of the income received is disbursed annually for charitable purposes

2005-2006 50% of the income received in the preceding year must be disbursed annually for charitable purposes

2007 No changes

TAX TREATMENT ON INCOME OF INVESTMENT HOLDING COMPANY (IHC)

2006 The income of IHCs listed on Bursa Malaysia be treated as business income and the expenses be given full deduction. An IHC is redefined as a company that derives at least 80% of its gross income from holding of investment.

2007 No changes

FLEXIBILITY IN ESTIMATING TAX PAYABLE FOR COMPANIES

2006 The estimates for companies be lowered from not less than 100% to not less than 85% of the preceding year’s estimates or revised estimates.

2007 No changes TAX TREATMENT ON BENEFIT FROM EMPLOYEES’ SHARE OPTION SCHEME

2006 The value of the benefit for each share option be determined based on the difference between the market price on the date the share option is exercised or exercisable, whichever is the lower, and the discounted price offered by the employer. The benefit is liable to tax in the year the option is exercised.

2007 No changes INCENTIVES Reinvestment Allowance (RA) 2000

RA would only be granted to investments which would enhance productivity, subject to the following conditions: -

i. The reinvestment increase productivity

ii. The company must be in operation not less than 12 months

iii. RA for 5 years commencing from the year the first reinvestment is made

iv. Assets acquired from RA cannot be disposed within 2 years

2001 Reinvestment allowance (RA) for manufacturing and food producing companies would be enhanced with Accelerated Capital Allowance on the expiry of RA.



2002 Reinvestment allowance period be extended from 5 years to 15 consecutive years commencing from the year the first reinvestment is made.

2003-2004 Reinvestment allowance for modernising chicken and ducks rearing system for 15 consecutive years commencing from the first year the reinvestment is made – provided that they are approved by Ministry of agriculture. i. Located in promoted areas – RA of

60% on qualifying capital expenditure to be set off against 100% of statutory income.

ii. Located outside promoted area – RA 60% on qualifying capital expenditure to be set off against 70% of statutory income.

Subject to conditions minimum rearing capacity of : i. 20,000 broiler chicken/ ducks per

cycle ii. 50,000 layer chicken/ ducks per cycle

2005-2006 Scope of the existing incentive extended to reapers of parent and grand parent stocks if :- i. they rear at least 20,000 parent or

grand parent stock of chicken /ducks per cycle

2007 No changes Pioneer Status 2000

Extended to vendors and SMI producing intermediate goods in an approved scheme Exemption is 100%. If the vendors achieved world-class standard, 10 years exemption will be given and the exemption is 100% of the statutory income.

Extended to the following projects: i. Construction of medium & low cost

hotels (certified by Ministry of Culture) ii. Expansion/modernisation of existing

hotels iii. Construction of holiday camps &

recreational projects including summer camps

iv. Construction of convention centres with a hall capable of accommodating at least 3,000 participants

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2001-2003 Manufacturing, agricultural and tourism companies are eastern Corridor of Peninsular Malaysia, Sabah and Sarawak (hotel) (promoted areas) is given pioneer status with tax exemption 85% of statutory income which expired on 31 December 2005.

2004 Pioneer status with tax exemption of 100% of statutory income for a period of 5 years or Investment Tax Allowance of 100% of the qualifying capital expenditure incurred within a period of 5 years.

2005 Second round pioneer status with 100% tax exemption for 5 years be given to existing manufacturing company relocating activities to promoted area.

2006 The incentives for Eastern Corridor, Sabah and Sarawak be extended for another 5 years until 31 December 2010. Companies which undertaking multimedia activities outside the Cybercities entitled for the pioneer status - tax exemption of 50% of statutory income for a period of 5 years.

2007 Perlis be declared as a promoted area. Streamlining tax treatment for pioneer status companies

2006 Companies which incurred accumulated losses and unabsorbed capital allowances during the pioneer period allowed to be carried forward and deducted from post-pioneer income of a business relating to the same promoted activity or promoted product. Effective for companies whose pioneer period will expire on and after 1 October 2005.

2007 No changes Investment Tax Allowance (ITA) 2000 Extended to vendors & SMI producing Intermediate goods in an approved

scheme. ITA Rate = 60% and deducted 100% from statutory income.

Extended to the following projects: i. Construction of medium & low cost

hotels (certified by Ministry of Culture) ii. Expansion/modernisation of existing

hotels iii. Construction of holiday camps and

recreational projects including summer camps

iv. Camps v. Construction of convention centres

with a hall capable of accommodating at least 3,000 participants



2001-2003 ITA for companies located in the Eastern Corridor of Peninsular Malaysia, Sabah and Sarawak will be extended to 2005.

2004 No changes 2005 ITA of 100% of qualifying capital

expenditure incurred within a period of 5 years for company producing high quality halal food that comply with international standards set off up to 100% of statutory income Second round of ITA of 100% for 5 years to existing manufacturing company relocating to promoted areas.

2006 Companies which undertaking multimedia activities outside the Cybercities where, investment tax Allowance of 50% of qualifying capital expenditure incurred within a period of 5 years to be set-off against 50% of statutory income for each year of assessment.

2007 No changes Incentive on issuance of Islamic securities

2006 Islamic securities based on leasing (Ijarah), progressive sales (Istisna’), profit sharing (Mudharabah) and profit and loss sharing (Musharakah) are deductible.

2007 Extended until 2010. Special Purpose Vehicles (SPV) established solely for Islamic financing

2006 Taxable

2007 The SPV is exempted from tax while income from SPV deemed as income of the company that establish the SPV will be subject to tax

Incentives to Promote Tourism

i. Tax Exemption 2000-2001 Exemption is extended to year 2001 for tour operators, which handle at least 500 foreign, or 1200 domestic participants.

2002-2003 Income earned from the organisation of international trade exhibition held in Malaysia be given income tax exemption and subject to the following conditions i. The international exhibition is

approved by MATRADE; and ii. The organiser of the international

trade exhibition brings in at least 500 foreign visitors per year

2004-2006 Investment in expansion, modernisation and renovation be given another pioneer status increase from 85% to 100% or investment tax allowance increase from 80% 100%.

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2007 Tour operators be given 50% excise duty exemption on locally assembled 4WD vehicles (w.e.f. 02.09.2006). Extended the incentives for tour operators for another 5 years until YA 2011.

Incentive for Approved Operational Head Quarters Companies (OHQ)

2000-2002

Since 1988 these incentives are given to foreign owned companies. Now, locally owned companies are allowed to set up OHQ. The incentives are also extended to cover all economic sectors.

2003 Income from services to related companies overseas is exempted from income tax for 10 years.

2004-2006 Income from qualifying services provided by OHQ to its related companies in Malaysia be given tax exemption provided that income does not exceed 20% of the OHQ income from qualifying services.

2007 No changes

Incentive for Venture Capital Companies (VCC)

2000-2006 Tax exemption on all sources of income received during the life span of the fund or 10 years whichever is earlier. VCC must invest 70% of its fund in promoted activities and used as seed capital, start up capital, start up capital and first stage financing to eligible for this incentive

2004-2006 Income from profit sharing between VCC and VCMC is exempted in the hand of VCMC.

2007 VCCs investing at least 50%of its investment funds in VCs in the form of seed capital be given income tax exemption for 10 years.

Incentives to promote export – income tax exemption

2000-2001

70% of statutory income derived by Companies granted “international trading company” status from the increased value of export sales will be exempted from tax

2002-2006 Exempted from income tax equivalent to 10% of the increased export value for a period of 5 years provided that: i. Equity holdings by Malaysian in the

company be reduced from 70% to 60%

ii. Annual sales turnover be reduced from more than RM25 million to more than RM10 million

iii. Export of goods of related companies is allowed without any restrictions

2007 No changes



Incentive to increase food production 2000 Losses incurred by companies engaged in eligible food production will be allowed as deduction against income of other companies within the same group.

2001 Amount invested or losses in wholly owned subsidiaries are deductible in holdings statutory income. Companies is entitle for full exemption from income tax for ten years (commencing from the first year record profit) Companies with cold chain facilities will be given Pioneer Status for 5 years or Investment Tax Allowance of 60%.

2002 Reinvestment in the production of the

same food product will be given full exemption from income tax for 5 years subject to the same condition as announced in the 2001 budget.

2003-2004 i. Locally owned company located outside the promoted areas –Pioneer status of 70% or Investment tax allowance of 60% to be set off against 70% of statutory income.

ii. Locally owned company located in the promoted areas – Pioneer status of 85% or Investment tax allowance of 80% to be set off against 85% of statutory income.

2005-2006 Incentives extended to application received until December 31, 2010.

2007 No changes

Introduction of group relief 2006 The relief to be provided to all high risk project companies which are limited to 50% of current year unabsorbed losses to be set-off against the income of another company within the same group.

Incentives for unit trust 2000-2003 Tax exemption for federal and state

sponsored unit trust company. 2004 i. Gains from disposal of real property

by individual or companies to REIT or PTF be exempted from RPGT; and

ii. Instruments of transfer of real property from individuals or companies to REIT or PTF be exempted from stamp duty.

2005-2006 i. REIT or PTF be exempted from

income tax on chargeable income distributed to unit holders whereas its undistributed chargeable income be taxed at 28%

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ii. Income distributed to unit holders be taxed at their respective tax rates. For a non-resident unit holder, tax payable is at 28% at shall e withheld by REIT or PTF

iii. The accumulated income that has been taxed and subsequently distributed is eligible for tax credit in the hands of unit holders

2007 No changes Incentives for bond market 2000-2003 Stamp duty and real property gains tax on

instrument on transfer of assets. 2004-2005 No changes 2006 Expenses for financial institution and non-

financial institution incurred on discounts or premiums for the issuance of bonds be given deduction on annual basis until the date of maturity of the bonds.

2007 No changes Incentives for the use of National sports complex, National theatre, National Art Gallery & Petronas Philharmonic hall

2000-2006 Income earned by non-resident from performing in arts and cultural shows, participating in exhibitions, games and sports will be exempted from income tax. 50% of income earned by organizers from organizing sports, cultural and arts shows, exhibitions and festivals involving foreign participation will be exempted from income tax up to Assessment year 2001. Admission tickets exempted from entertainment duty. Goods sold by companies operating in Industrial Free Zones or Licensed Manufacturing Warehouse during the approved sales carnival held at Bukit Jalil Sports Complex will be exempted from import duty and sales tax.

2007 No changes Incentives for providing cold chain facilities and services perishable agricultural produce

2000-2003 i. Pioneer status with tax exemption of

70% (85% for promoted areas) of statutory income for a period of 5 years or

ii. Investment tax allowance of 60% on qualifying incurred within a period of 5 years can be used to set off against 70% (85% for promoted areas) of statutory income in each year of assessment.



2004-2006 i. Pioneer status with tax exemption of 70% (85% for promoted areas) on increased statutory income for a period of 5 years or

ii. Investment tax allowance of 60% on additional qualifying expenditure incurred within a period of 5 years can be used to set off against 70% (85% for promoted areas) of statutory income in each year of assessment.

2007 No changes Incentives for sports and recreation 1999-2006 Income earned by drivers of car racing is

exempted from tax. 50% of income earned by organizers of car racing will be exempted from tax.

Income earned from luxury boats and yachts repair and maintenance activities carried on in Langkawi will be exempted from tax for 5 years.

2007 No changes Incentives for energy-generating companies and companies using biomass as source of energy (environment-friendly and renewable)

2000 2001

No incentives i. Accelerated Capital Allowance on

equipment within 3 years. ii. Income tax exemptions of 70% of the

statutory income for 5 years or Investment Tax Allowance (ITA) of 60%.of capital expenditure restricted to 70% of statutory income. Application must be made between 28.10.2000 to 31.12.2002.

2002 No changes 2003 i. Period for application for the tax

exemption or ITA above are extended to 31.12.2005

ii. Accelerated Capital Allowance on equipment within 1 year.

iii. The scope of sources extended to hydro power (not exceeding 10 megawatts) and solar power.

2004-2006 Utilisation of oil palm biomass to produce value added products will be given the following incentives:

i.i. Pioneer status with tax exemption of 100% of statutory income for a period of 10 years.

ii. Investment tax allowance of 100% on qualifying capital expenditure incurred within a period of 5 years and then can be used to set off against 100% of statutory income.

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2007 i. Pioneer status with tax exemption of 100% of statutory income for a period of 10 years is extended to the first year the company derives profit;

ii. New incentives introduce: � a concessionary tax rate of 20% on income from qualifying activities for 10 years;

� tax deduction equivalent to total investment made in seed capital;

� bionexus merge/ acquisition with biotechnology company, exemption of stamp duty and RPGT within 5 years until 31.12.2005.

� building used for biotechnology R&D given IBA for 10 years.

Incentives for energy-generating from renewable sources biomass, hydro power (not exceeding 10 megawatts) and solar power.

2006 i.i. Pioneer status with tax exemption of 70% be increased to 100% of statutory income and the incentive period be extended from 5 to 10 years. OR

ii. Investment tax allowance of 60% be increased to 100% on qualifying capital expenditure incurred within a period of 5 years with the allowance to be set off against 100% of statutory income.

In addition, the incentive package of Pioneer and Investment Tax Allowance as well as import duty and sales tax exemption be extended for another 5 years until 31 December 2010.

2007 No changes Incentives for conservation of Energy 2006 i. Companies providing energy

conservation for services : � The application period for Pioneer Status, Investment Tax Allowance, import duty and sales tax exemption be extended for another 5 years until 31 December 2010. The company is required to implement the project within one year from the date of approval of the incentives.

ii. Companies which incur capital expenditure for conserving energy for own consumption: � Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within a period of 5 years with the allowance to be



set-off against 70% of statutory income. The proposal is effective for applications received by the (MIDA) from 1 October 2005 until 31 December 2010.

2007 No changes Incentives for Malaysian experts abroad

2000

No incentives

2001-2006 i. Income remitted within 2 years from date of arrival is exempted from income tax.

ii. Two cars will be exempted from sales tax and import duty

iii. Spouse and children will be given permanent resident status within six months.

2007 No changes Incentive for the implementation of RosettaNet

2000-2001 No incentives

2002-2006 Expenditure and contributions incurred by companies in the management and operation of RosettaNet Malaysia and in assisting local small and medium scale companies to adopt RosettaNet be allowed as a deduction for purposes of income tax.

2007 No changes Incentives on Practical training for non-employees

2000-2001 Not tax deductible

2002-2006 Tax deductible if the trainees are resident. 2007 Incentive for companies undertakings an offshore trading via websites in Malaysia approved by Finance Minister

2000-2001 2002-2006

No incentives i. Income is taxed at 10% for 5 years ii. Dividend paid out is tax exempt.

2007 No changes Incentives for machinery and equipment industry

2000-2001 Company which produce machinery & equipment is eligible for pioneer status with 70% income tax exemption for 5 years or Investment tax allowance of 60% for 5 years if value added is at least 30% and managerial, technical & supervisory index is at least 15%

2002-2003 Value added criteria are reduced to 20%. 2004-2006 Company which produce machinery &

equipment is eligible for pioneer status with 70% income tax exemption and increased statutory income or Investment tax

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allowance of 60% on additional qualifying expenditure. The allowance can be set off against 70% of statutory income

2007 No changes

Incentives for company undertaking activities relating to the production of Machine tools, Plastic injection machines, Material handling equipment, Robotics and factory automation equipment, Parts and components of the above machines and equipment.

2000-2001 Company which produce machinery & equipment is eligible for pioneer status with 70% income tax exemption for 5 years or Investment tax allowance (ITA) of 60% for 5 years if value added is at least 30% and managerial, technical & supervisory index is at least 15%

2002 i. i. Pioneer Status with tax exemption of 100% of statutory income for 10 years; or

ii. ITA of 100% and fully deductible against statutory income.

Conditions: value added criteria of at least 30% and the managerial, technical and supervisory index criteria of at least 15%.

2003 The above incentives are extended to the following categories: i. Specialised/ process machinery or

equipment for specific industry, Packaging machinery, Plastic extrusion machinery; and

ii. Parts and components of the above machinery and equipment

2004-2006 i. Pioneer status with tax exemption of 70% (100% for promoted areas) on increased statutory income arising from reinvestment for a period of 5 years; or

ii. Investment tax allowance of 60% (100% for promoted areas) on additional qualifying expenditure incurred within a period of 5 years then can be used to be set-off against 70%(100% for promoted areas) of statutory income.

2007 No changes

Incentives for rearing of chicken and ducks in Eastern Corridor of Peninsular Malaysia

2002-2006 i. Pioneer Status with tax exemption of 85% of statutory income for a period of 5 years; or

ii. ITA of 80% of capital expenditure incurred within a period of 5 years with the allowance deducted in each YA be limited to 85% of Stat Income.

2007 No changes



Incentives for resources based industries

2002-2006 Local companies in these industries which reinvest for expansion purposes be granted the following incentives: i. Located outside promoted areas:

� Pioneer Status with tax exemption 70% of statutory income for a period 5 years.

� Investment Tax allowance of 60% on capital expenditure incurred within a period of 5 years with the allowance deducted for each year of assessment limited to 70% of statutory income.

ii. Located in promoted areas: � Pioneer Status with tax exemption of 85% of statutory income for a period of 5 years; or

� ITA 80% on capital expenditure incurred within a period of 5 yrs with the allowance deducted for each year of assessment limited to 85% of statutory income.

2007 No changes Incentives for luxury yacht industry 2002-2006 Income derived by company from providing

chartering services of luxury yachts is exempted from income tax for 5 years if the yacht is 40 metres and above in length.

2007 No changes

Incentive to acquire a foreign companies abroad

2000-2002 Acquisition cost not tax deductible

2003-2006 AA of 20% of the acquisition cost for 5 years is granted to locally owned companies that acquire foreign companies for the purpose of acquiring high technology for production within the country; or to gain new export markets for local products.

2007 No changes

Incentive to increase export (for locally owned manufacturing company only)

2003-2006 i. Tax exemption on statutory income equivalent to 30% of increased export value provided the company achieves a significant increase in exports.

ii. Tax exemption on stat Income equivalent to 50% of increased export value provided the company succeeds in penetrating new markets.

iii. Full tax exemption on increased export value, provided that the company achieves the highest increase in exports.

2007 No changes

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Incentives to consolidate the management of smallholdings and idle land

2003-2006 i. A company that invest in a wholly owned subsidiary company be allowed a deduction equivalent to the amount of investment.

ii. A wholly owned subsidiary company be exempted from service tax.

2007 No changes Incentives for knowledge-based economy

2003-2006 i. Strategic Knowledge-based status company – Pioneer status with tax exemption of 100% or Investment tax allowance of 60% to be set off against 100% of statutory income with the following conditions: a) Must be knowledge-intensive company with the following characteristics:

- potential to generate knowledge content - high value added operations - high technology - a large number of knowledge workers

b) Must have a Corporate Knowledge Based Master Plan - company for drafting the individual Corporate Knowledge based Master Plan

- deduction in the computation of income tax when the company begins the implementation.

2007 No changes Incentives to increase the planting of rubber wood trees

2003-2006 Non-rubber plantation company that plants at least 10% of its plantation with rubber wood trees be given Accelerated Agriculture Allowance from two years to one year.

2007 No changes Incentives for automotive component modules

2003-2006 New and existing companies that undertake design, R&D and production of certain qualifying automotive component modules or systems be given: i. Pioneer status with tax exemption

for 5 years. ii. Investment Tax Allowance of 60% on

qualifying capital expenditure incurred within a period of 5 years with the allowance deducted for each year of assessment to be set-off against 100% of the statutory income.

2007 No changes



Incentives for Regional Distribution Centre (RDC)

2003-2006 Approved RDC be granted the following incentives:- i. Full tax exemption for 10 years ii. Dividends paid be exempted from tax iii. Import duty and sales tax exemption iv. Expatriate posts to be approved

according to their requirements The above incentives is subject to the following conditions:- i. The RDC is incorporated in Malaysia ii. Total turnover not less than RM100 iii. million iv. the RDC must be located in the free

zones or licensed warehouse or licensed manufacturing warehouse

v. the RDC is not permitted to sell more than 20% to the local market.

2007 No changes Incentives for International Procurement Centre (IPC)

2000-2002 Approved IPC be granted the following incentives:- i. Expatriate posts will be approved

based on IPC’s requirements ii. Open foreign currency accounts with

any licensed commercial bank to retain export proceeds without limit

iii. enter into foreign exchange forward contracts with any licensed commercial bank to sell forward export proceeds based on projected sales

iv. 100% equity holding by the promoter; and

v. Customs duty exemption on raw materials, components or finished products brought into free trade zones, licensed manufacturing warehouses, free commercial zones and bonded warehouses for repackaging, cargo consolidation and integration.

Conditions:- i. Incorporated in Malaysia ii. Min. paid-up capital RM500,000 iii. Min. total business operating

expenditure RM1,500,000 per year iv. Incremental usage of Malaysian ports

and airports; and v. Min. annual sales turnover of RM50

million by the third year of operation vi. Not permitted to sell more than 20%

to the local market. i.

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2003-2006 Full tax exemption of its statutory income for 10 years and dividend paid from the exempt income will be exempted from tax in the hands of its shareholders if the following additional conditions are met- ii. min. annual sales turnover RM100

million; iii. must serve as a collection and

consolidation centre for finished goods, components and spare parts.

2007 No changes Incentives for deep sea fishing 2003-2006 A. First option

i. The company which invest in the subsidiary company engaged in the deep sea fishing be granted tax deduction equivalent to the amount of investment made in that subsidiary;

ii. The subsidiary company be given income tax exemption of 100% on its statutory income for 10 years commencing from the first year the company enjoys profit and losses incurred before or during the exemption period is allowed to be brought forward after the exemption period of 10 year;

iii. Dividends paid by the subsidiary from the tax exempt income is exempted from tax in the hands of its shareholders

iv. Second option v. The company which invest in

subsidiary company engaged in deep sea fishing be given group relief for the losses incurred by the subsidiary company before it records any profit;

vi. The subsidiary company be given income tax exemption of 100% on its statutory income for 10 years commencing from the first year the company enjoys profit in which losses incurred during the exemption period is also allowed to be brought forward after the exemption period of 10 years’

vii. Dividends paid by subsidiary from its exempt income is exempted from tax in the hands of the shareholders

The incentives are as follows: i. The investing company should own

100% of the company that undertakes deep sea fishing



ii. The project should commence within a period of one year from the date the incentive is approved

iii. The project must comply with the provision of Fisheries Act 1985

2007 No changes 100% allowance on capital expenditure on approved agricultural project

2002-2006 i. Cultivation of vegetables, tubers, roots, herbs, spices, crops for animal feed and hydroponics based product for 3 years and minimum area of 40 hectare.

ii. Ornamental fish culture – open system (land/concrete pond) for 2 years and minimum area of 5 hectare. iii. Ornamental fish culture – enclosure system for 2 years and minimum area 0.25 hectare. iv. Pond culture – fish and prawns (brackish water/fresh water) for 2 years and minimum area 20 hectare. v. Tank culture – fish (brackish water/

fresh water) for 2 years and minimum area 1 hectare.

vi. Offshore marine cage culture – fish for 2 years and minimum area 0.5 hectare. vii. Marine cage culture – fish (brackish water/ fresh water) for 2 years and minimum area 0.5 hectare. viii. Cockle culture for 1 year and minimum area 10 hectare. ix. Mussel and oyster culture for 2 years and minimum area 0.5 hectares. x. Seaweed culture for 1 year and minimum area 5 hectare. xi. Shrimp hatchery for 2 years and minimum area 0.25 hectare. xii. Prawn hatchery for 2 years and minimum area 0.25. xiii. Fish hatchery (seawater/ brackish water/ fresh water) for 2 years and minimum area 0.5 hectare.

2007 No changes Tax treatment for expatriates in operational headquarters (OHQ) and regional offices (RO).

2003-2006 Tax will be charged on the portion of chargeable income attributable to the number of days they are in the Malaysia.

2007 No changes Incentives for commercialisation of public sector R&D

2005-2006 i. A company that invests in its subsidiary company engaged in the commercialisation of the R&D findings be given tax deduction equivalent to

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the amount of investment made in the subsidiary company

ii. The subsidiary company that undertakes the commercialisation of the R&D findings be given Pioneer Status with 100% tax exemption on statutory income for 10 years

2007 No changes Incentive on expenses incurred for new courses by private higher education institutions (PHEIs)

2006 i. Deductions to be amortised for 3 years be allowed on expenses incurred by PHEIs on development of new courses and compliance with regulatory requirements for introducing new courses

ii. The commencement of the deduction for the development of new courses be allowed from the year of completion of the process of developing the courses.

iii. For regulatory compliance, the deductions be allowed from the year if completion of the exercise.

2007 No changes Zakat 2000-2003 No rebates except for resident individual 2004 Tax rebates on zakat for Labuan offshore

companies subject to maximum of 3% of net profit or RM20,000.

2005-2006 Deduction of up to 2.5% of aggregate income be given to company paid zakat on business income.

2007 Deduction of up to 2.5% of aggregate income be extended to cooperatives and trust bodies.

Incentive to encourage the use of natural for gas vehicles (NGV)

2006 i. Import duty and sales tax exemption on conversion kits and related components for diesel buses and motor vehicles and motor vehicles for transportation of goods to be converted to dual-fuel vehicles given by Petronas

ii. Import duty exemption on chassis fitted

with engines for NGV monogas buses and motor vehicles for transportation of goods

iii. Import duty exemption on NGV monogas engines to replace diesel engines for buses and motor vehicles for transportation of goods

2007 No changes



Incentives for private higher education institutions (PHEIs)

2006 Investment tax allowance of 100% on qualifying capital expenditure incurred within a period of 10 years to be set off against 70% of statutory income be extended to PHEIs in the field of science and existing PHEIs in the field of science that undertake additional investment to upgrade equipment or expand their capacity

2007 No changes Incentives for industrialised building system

2006 Accelerated Capital Allowance (ACA) be given on expenses incurred on the purchase of moulds used in the production of IBS components and to be fully written off within a period of 3 years

2007 No changes Disposal of real property by individual or companies to Property Trust Fund and Real Estate Investment Trusts

2000-2003 2004-2006

2007


Disposal of asset by approved Islamic financial & capital market products from Syariah Advisory Council, Bank Negara or Securities Commission

1999-2004 2005-2006

2007


Incentives for mergers and acquisition(M&A) of listed companies

2006 Stamp duty and RPGT exemption are given on M&A undertaken by companies listed on Bursa Malaysia in order to encourage public listed companies to expand and compete globally.

2007 No changes Real Estate Investment Trusts (REITs)

2006 Fees for the consultancy, legal and evaluation services incurred are allowable for deductions.

2007 i. Non-corporate investor who received dividends from REITs listed on Bursa Malaysia subject to withholding tax of 15% for 5 years.

ii. Foreign institutional investors that

received fund from REITs listed on Bursa Malaysia subject to withholding tax of 20% for 5 years

iii. REITs be exempted from tax on all

income provided that at least 90% of the income is distributed to the investor.

iv. If the 90% distribution condition is not complied, REITs will subject to

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income tax, while all their investor are eligible to claim tax credit.

( i and ii are effective from 1st January 2007 and iii and iv effective from year assessment 2007)

Disposal of residential property

2006 Election to claim RPGT on a residential property is given to both husband and wife on one residential property each for once in a lifetime

2007 No changes Low cost housing projects 2006 Estimated losses of low cost housing

projects be allowed to be set-off against estimated profits of other property development projects in the preparation of estimates of tax payable for the current year.

2007 No changes Profit or interest income received by non-resident from banking and financial institutions established under Islamic Banking Act 1983

2006 2007

Non exempted Exempted

Set up overseas bank operation 2007 Profit from newly established branches

overseas or remittances of new overseas subsidiaries be given income tax exemption for 5 years. (w.e.f 2nd September 2006 until 31st December 2009)

SERVICE TAX Rates and Prescribed Establishments 2001 5% service tax is imposed on:

Telecommunication services (except internet services), golfing, public and houses selling liquor. All forwarding agent (previously only for annual turnover > RM150,000)

2002

Threshold reduced from RM 500,000 to RM 300,000 for following services: i. Restaurants, bars, snack-bars, coffee-

houses in hotels having 25 rooms or less

ii. Restaurants, bars, snacks-bars, coffee-houses outside hotels and food courts

iii. Private clubs iv. Advertising firms Threshold reduced from RM300,000 to RM150,000 for professional and consultancy services provided by accounting, legal, engineering,



architectural, surveyor, consultancy firms and companies providing management services including project management/ coordination services

2003 The following services/establishments are exempted from service tax- i. wholly owned subsidiary company

involved in the consolidation the management of smallholdings and idle land.

ii. courier services from Malaysia to a place outside Malaysia

iii. professional services provided by a company to another companies in the same group

Asset backed securities 2004-2006 Management services rendered by

originator to special purpose vehicles in respect of Asset Backed Securities is exempted.

2007 No changes

Refund of service tax on uncollected debts

2000-2002 No refund

2003-2006 Licensee is eligible to apply for refund of the tax under certain conditions.

2007 The tax refund can be claimed 6 months instead of 12 months previously from the date the tax is paid.

SALES TAX ii. Exemption 2000 Goods sold during approved sales

carnivals at National Sport Complex Bukit Jalil by companies operating in FTZ or licensed manufacturing warehouses

2001 i. Two personal cars brought back to Malaysia by Malaysian expert who wish to return to Malaysia

ii. Prime movers & trailers produced locally

iii. Machinery & equipment used in plantation sector

iv. equipment used by companies providing energy conservation services & equipment used to conserving energy

v. equipment used in recycling industry 2002 Educational equipment used by private

institute of higher learning & language institutions

2003 Approved Regional Distribution Centre incorporated in Malaysia

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2004 Companies in manufacturing and approved services sectors are exempted from sales tax on spares and consumables not produce locally.

2005 Companies outsourced their activities to contract manufacturers are exempted from sales tax on raw materials which are not manufactured locally and semi-finished goods imported

2006 Import duty and sales tax exemption be

given to equipment used in stages shows and performance provided such equipment is basic to the core activity and not produced locally. Sales tax exemption be given to equipment for performing arts if produced locally.

2007 No changes ii. Abolishment of sales tax 2003-2006 Selected quality paper. 2007 No changes iii. Higher sales tax 2001-2005 Liquor – increased from 15% to 20%

Cigarettes - increased from 15% to 25% 2006 Liquor – increased by 9%

Cigarettes – increased by 13% 2007 No changes Sales tax valuation for locally manufactured goods

2000-2002

Based on an open market price.

2003-2006 Based on transaction value. 2007 No changes Refund on sales tax for the uncollected debt.

2000-2002 2003-2006

No refund Licensee may apply for refund of the tax under certain conditions.

2007 The tax refund can be claimed 6 months instead of 12 months previously from the date the tax is paid.



IMPORT DUTIES Reduction in duties 2000 Reduction from between 5% and 30% to

between 0% to 20% for the 305 products of the following: - i. Fabrics ii. Sewing machine iii. Furniture iv. Leather shoes v. Electronic parts & generators Reduction from between 5% & 20% to between 2% & 12% on 136 categories of food products

2002 i. 55 protected goods – Reduced to between 10% and 50%.

ii. 25 intermediate goods – reduced to between 5% & 25%

iii. 109 goods with inconsistent rates – reduced to between 0% to 25%

iv. CBU motorcycles above 200 cc – reduced to 60%

v. Food products – reduced to range 5% to 15%

2004 104 items be reduced and 7 items be abolished

2005 118 items be reduced and 27 items be abolished

2006 51 goods be reduced from between 25% and 30% to between 20% and 25%. 10% of import duties be imposed on 3 products

2007 No changes Increased duties 2000-2001 Cigarettes and tobacco products;

Alcoholic beverages 2002-2003 Increment from RM 180 per kg to RM 216

per kg for cigarettes and tobacco products 2004-2005 Increment from RM 216 per kg to RM259

per kg for cigarettes and tobacco products 2006 Increment from RM259 per kg to RM340

per kg for cigarettes and tobacco product 2007 No changes Exempted 2000 Exemption on imported spares &

consumables used by manufacturing companies be extended to 31.12.2000

2001 i. Spares and consumables goods for manufacturing companies and services sectors (exemption until 2003)

ii. Prime movers and trailers for the hauliers

iii. Machinery and equipment for plantation companies and companies provide services to conserve energy,

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energy-generating companies utilise biomass and recycling activities.

Equipment specifically designed for use by disabled persons

2004 Spares and consumables goods for manufacturing companies and approved services sectors.

2005 i. Raw material which are not manufactured locally and semi-finished goods imported from contract manufacturers abroad

ii. Medical devices which are not manufactured locally imported for the purpose of kitting or producing complete procedural set

2006 i. Import duty and sales tax exemption on conversion kits and related components for diesel buses and motor vehicles and motor vehicles for transportation of goods to be converted to dual-fuel vehicles given by Petronas

ii. Import duty exemption on chassis fitted with engines for NGV monogas buses and motor vehicles for transportation of goods

iii. Import duty exemption on NGV monogas engines to replace diesel engines for buses and motor vehicles for transportation of goods

2007 No changes Abolished 2003 Selected quality paper. 2004 7 items 2005-2006 27 items 2007 No changes EXCISE DUTY Increased 2002 Cigarettes & tobacco products –

Increased from RM 40 per kg to RM 48 per kg

2004 Cigarettes & tobacco products – Increased from RM 48 per kg to RM 58 per kg

2005 i. Cigarettes & tobacco products Increased from RM 58 per kg to RM 81 per 1,000 sticks

ii. Liquor – increased from RM0.05 and RM23.40 to between RM0.10 and RM28 per litre



2006 i. Cigarettes & tobacco products increased from RM81 per kg to RM110 per kg and addition 20%

ii. Other manufactured tobacco products increased from RM20 per kg to RM25 per kg and addition 5%.

iii. Liquor increased from RM1 and RM28 to between RM1.50 to RM42.50 per litres and addition 15%

iv. Beer increased from RM5 to RM6 per litres and addition 15%

2007 i. Cigarettes increased from RM110 per kg to RM120 per kg and addition 20%

ii. Tobacco products increased from RM25 per kg to RM27 per kg and addition 5%

iii. Beedies increased from RM7 per kg to RM7.50 per kg and addition 5%

Iv. Liquor product increased from RM25 per litre to RM30 per litre and addition 15%

Exempted 2001 National car and motorcycle – 50%

exemption Abolished 2000-2001 Air conditioners, refrigerators and T.V.

manufactured locally 2002-2006 National car purchased by car rental

operators 2007 No changes

OTHER SIGNIFICANT TAXES AND FEES

Stamp Duty Instruments of transfer of property 2001 Maximum rate of 3% 2003-2006 50% exemption for transfer of property

without any monetary consideration between husband and wife and between parents and children.

2007 No changes

Issuance of Islamic securities- Transfer of asset by the party that need financing to the SPV for the purpose of lease back relating to financing through the issuance of Islamic securities

2000-2003 2004-2006

2007

No incentives Exempted 20% exemption on the instrument used in Islamic financing for a period of 3 years.

Incentives for property trust funds and Real estate investment trusts – Transfer of real property from individuals/companies to PTFs/REITs

2000-2003 2004-2006

2007

No incentives Exempted No changes

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Contract notes 2000 2001-2005

RM1.50 for every RM1,000 RM10

2006 For SMEs, remission of stamp duty 50% on applicable charges be given on instruments for a loan up to RM1 million.

2007 No changes Instrument of Loan Agreement for education

2000

2001-2006

Subject to stamp duty to the maximum of : RM6.00 : RM10

2007 No changes Various documents apart than above 2000

2001-2006 Different rates imposed Standardised at RM10

2007 No changes Instruments under Islamic Banking 2000-2002 Additional stamp duty is imposed on new

agreements for the renewal of akad from time to time.

2003-2006 Stamp duty exempted on all new agreements.

2007 No changes Mergers if private institution of higher learning

2005-2006 Stamp duty exempted for mergers undertaken not later than December 31, 2006

2007 No changes Approved Islamic financial and capital market products from Syariah Advisory Council, Bank Negara or Securities Commission

2000-2004 2005-2006

2007

No incentive Exempted No changes

Leasing Activity Interest expense for leasing activity 2006 Companies which undertaking leasing

and non leasing activities, the interest expense must be apportioned between leasing and non-leasing activities based on the respective amount of funding used.

2007 No changes Entertainment Duty 2005-2006 Full exemption arts and cultural

performance by local artistes held in the Federal Territory of KL, Labuan and Putrajaya upon approval by the Ministry of Arts, Culture and Heritage

2007 No changes Road tax Motorcycles 2004-2006

2007 Motorcycle below 150 cc is exempted No changes

Vintage car 2000-2006

2007

Reduced from 20% to 10% of the prevailing rate No changes



Multi purpose semi-trailers and prime movers

2003-2004 i. road tax on multi purpose semi-trailers be abolished

ii. road tax on prime movers for containers be maintained base only on the kerb weight

2005-2006 Stamp duty exempted 2007 No changes Vehicles for the physically disabled 2000-2003 Subject to RM1.00 for three wheeled

motorcycle. 2004-2006 Exempted for motorcycles, cars and vans

subject to following conditions:- i. Vehicles manufactured locally iii. Applicant registered with Social

Welfare Department and possesses a valid driving licence

iii. Vehicles is registered under the name of applicant

iv. One vehicle at any one time 2007 No changes Bus for workers 2004-2006 Peninsular Malaysia: i. Engine Capacity 5,000 cc(Diesel)

decreased from RM1,476/yr to RM738/yr

ii. Engine Capacity 5,000 cc(Petrol) decreased from RM1,107/yr to RM553/yr

Sabah and Sarawak:- i. Engine Capacity 5,000 cc(Diesel)

decreased from RM1,125/yr to RM562/yr

ii. Engine Capacity 5,000 cc(Petrol) decreased from RM1,165/yr to RM562/yr

2007 No changes Private diesel vehicle 2006 Road tax on private diesel vehicles

exceeding 1600 c.c be reduced by 40%, except in Sarawak (w.e.f : 5 October 2005)

2007 No changes Levy on portfolio profit repatriated after 1 year

2000 Taxable

2001-2006 Abolished 2007 No changes Requirement to qualify for resident status

2000-2002 Required to be in Malaysia for at least 182 days. If less than 182 days he is only eligible for residence status if the said period of less than 182 days is linked to another period of consecutive stay of 182

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days in a preceding year. Both these periods are deemed linked (31st December of that year and 1st January of the following year).

2003-2006 The requirement to be in Malaysia on 31st December of the current year and 1st January of the following year is abolished.

2007 No changes Customs Enhancing efficiency of customs agents

2003-2006 Approval for customs agent be given to those who have undergone training and are successful in the examinations conducted by Customs Department.

2007 No changes Establishment of Customs Appeal Tribunal (CAT)

2000-2006 Appeal made to Minister of Finance.

2007 Appeal made to the newly established Customs Appeal Tribunal (CAT) to decide on appeals against decisions of the Director General of Customs pertaining the matters under the Customs Act 1967, Sales Tax Act 1972.

Introduction of Customs Ruling 2007 i. The Customs Ruling be introduced

under the Customs Act 1967, Sales Tax Act 1972, Service Tax Act 1975 and Excise Act 1976 which issued by the KDRM.

Compound or fine under declaration and smuggling of high duty goods. Particularly for cars, cigarettes and liquor.

2000-2006 The offences of under declaration of goods and smuggling are punishable as follows: i. compound of not more than 10 times

of the duty or value of the goods; or ii. a fine if charged in court and

convicted, other than imprisonment sentence.

2007 i. the minimum compound imposed be 5 times of the total duty; and

ii. the fine imposed be in line with the maximum compound for dutiable goods and prohibited goods.

ADMINISTRATION Provision to allow tax assessments after six years

2006 The DGIR be empowered to make assessment after 6 years in cases where the assessment is determined by the court or withdrawal, revocation or cancellation of any exemption, relief, remission or allowance.

2007 No changes



Extending the scope of fund for tax refund

2006 The scope of fund for tax refund be extended to include refunds for petroleum income tax, real property gains tax and stamp duty.

2007 No changes

Enhancing the competency of tax agents

2006 A person who wishes to perform tasks relating to taxation be required to obtain tax agent license. However a licensed auditor who has acquired an audit licensed prior to 1 January 2006, shall be allowed to continue to be a tax agent.

2007 No changes

Introduction of Advance Rulings in Income Tax Administration

2007 The advance ruling is introduced under the Income Tax Act 1967. It is a written statement given by the Director General on the tax treatment of an arrangement to be undertaken by the taxpayer which features: i. application in prescribed form; ii. fees charged on advance ruling; iii. only applicable to applicant; iv. ruling issued on actual facts and not

on assumptions; and v. advance ruling is not applicable if the

facts used are incorrect or different.

Framework for tax audit and investigation by IRB

2007 Issued by IRB where the areas to be covered in the guideline/framework are as follows: i. selection of audit/investigation

cretaria; ii. methodology; iii. rights and responsibilities –

taxpayers, tax agents and investigation officers;

iv. audit/investigation settlement; and v. offences and penalties.

Special tax treatment for the property development and construction contract business.

2006 Gross income and adjusted income are ascertained on the percentage of completion method based on the directions given by the Director General and compliance to Income Tax Act 1967 and Public Ruling No. 3/2006

2007 Special regulation need to be formulated and published in the Gazette with the purpose of bringing the business within the ambit of paragraph 36(a)(iv) of the Income Tax Act 1967. with specific salient features.

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SECTION G

SUMMARY OF REVENUE AND ALLOCATION

1. STATISTIC

Percentage of total

Increase/ (Decrease)

2007 RM

Millions

2006* RM

Millions

2007 %

2006 %

%

Source of revenue: Income tax & other direct tax 70,116 62,637 52.00 51.93 11.94 Indirect taxes and duties 25,678 25,226 19.05 20.91 1.79 Non tax revenues 39,021 32,762 28.95 27.16 19.10

Total 134,815 120,625 100.00 100.00 11.76

Budget allocation Operating expenditure: Emolument, pensions, gratuity

32,864

31,727

29.09

30.11

3.58

Debt servicing charges 13,127 12,726 11.62 12.08 3.15 Supply & services 23,147 21,608 20.48 20.51 7.12 Grant & other expenditures 43,848 39,313 38.81 37.30 11.54

112,986 105,374 100.00 100.00 7.22

Development expenditure: Economic 20,827 16,283 46.79 45.47 27.91 Social 14,218 10,194 31.94 28.46 39.47 Security 6,817 5,781 15.32 16.14 17.92 General administration 2,648 3,556 5.95 9.93 (25.53)

44,510 35,814 100.00 100.00 24.28

Total expenditure 157,496 141,188 100.00 100.00 11.55

Deficit (22,681) (20,563) (10.30)

* Revised estimate (Sources: Economic Report 2006/2007)



2. REVENUE In the year 2007, total revenue is expected to grow from RM120,625 million to RM134,815 million, an increase of 11.76% attributable by the tax administration and enforcement efficiency. The major revenue contributor will be from the direct tax collection particularly corporate income tax which accounts for RM70,116 million or 52.00%.This followed by the non-tax revenue amounting for RM39,021 million or 28.95% of the total revenue contributed mainly from much higher oil related revenue. Indirect taxes are expected to contribute 19.05% of the overall source of revenue.

3. EXPENDITURE Of the total expenditure of RM157,496 million, 71.73% or RM112,986 is operating expenditure while the balance is development expenditure. The bulk of the operating expenditure goes to grant, emolument, supplies and services. Grant and other expenditures, the largest component of operating expenditure is expected to account for 38.81%. Emolument is expected to account for 29.09% taking into consideration the provision of cost of living allowance and other allowances for civil servants. Supplies and services are expected to expand mainly for maintenance and repairs, rents as well as payments for professional services. A significant portion of the development expenditure will be channelled to the economic and social sectors, particularly to provide public amenities, improved public transportation and reduce regional disparities. Under the economic sector, priority of the allocation will be given to the transportation sub-sector for construction and upgrading of roads, bridges, railways, ports and airports. The expenditure for general administration is mainly for upgrading of information and communications technology (ICT). The expenditure for security sector is mainly for upgrading the military and surveillance equipment as well as enhancing the skill levels of security personnel.

4. ANALYSIS OF CHANGES Based on the above statistics, the Government is expected to maintain a deficit budget of RM22,681 million as compared to RM20,563 million in year 2006, an increase of 10.30%. The total revenue is likely to increase from RM120,625 million to RM134,815 million, an increase of 11.76%. The high increment will be from non tax revenues which are estimated to increase by 19.10%, from RM32,762 million to RM39,021 million. Revenue from income tax and other direct tax is expected to contribute RM70,116 million, an increase of RM7,479 million or 11.94% compared to year 2006 whereas indirect taxes and duties is estimated at RM25,678 million, an increase of RM452 million or 1.79% compared to year 2006.

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Operating expenditure is expected to increase by 7.2% to RM112,986 million in order to sustain Government operations, particularly in its continuing quest to provide better services and amenities to the public. On development expenditure, the Government intend to focus on spending that can build income-generating capacity, help enhance economic efficiency as well as to create a more conducive investment climate. In this regard, total development expenditure is expected to increase significantly by 24.3% to RM44,510 million in 2007. A significant portion of the development expenditure allocation will be channelled to the social services and economic services. Under the social service sector, education and training sub-sector was accorded highest priority. A substantial sum is allocated for educational infrastructure including the construction of pre-schools and primary schools, 12 Mara Junior Science Colleges, University Kuala Lumpur and 22 industrial training institutes. The allocation under economic sector also concentrated on the agriculture and rural development. A lot of agriculture programmes undertaken places greater emphasis towards more modern and commercial farming methods such as Projek Pertanian Moden in Johor and Beef Valley in Selangor. This transformation is expected to increase the production capacity of food industries.

The expenditure for public utilities is also increased in line with government effort to bridge the rural-urban divide by improving rural accessibility to public amenities such as water supply, electricity and telecommunications.

5. MACRO ECONOMY The 2007 Budget, being the first for the Ninth Malaysia Plan (9MP) 2006-2010, will continue to stress on capacity building and improving efficiency in laying the foundation for medium and long-term sustainable growth. The Malaysian economy is expected to strengthen in 2007, despite a more challenging external environment. This optimism is underpinned by continued expansion of private sector activities, complemented by Government’s pragmatic policies and strategies to diversify and promote the new sources of growth. Overall, real GDP growth is envisaged to expand at 6% in 2007 (2006:5.8%), consistent with the growth targets outlined in the 9MP. Growth will continue to be broad-based with positive contribution from all sectors of the economy. In the face of increasing competition from regional economies, the Government will continue to provide a business friendly environment to attract foreign direct investment (FDI) as well as promoting private investment.



SECTION H

TAX INFORMATION

Resident individual income tax rates

Chargeable Income

Assessment Year 1996-2000(PY)

Assessment Year 2000(CY) –

2001

Assessment Year 2002-2007

RM Rate (%)

Tax payable (RM)

Rate (%)

Tax payable (RM)

Rate (%)

Tax payable (RM)

First 2,500 0 0 0 0 0 0 Next 2,500 2 50 1 25 1 25 On 5,000 50 25 25 Next

5,000

4

200

3

150

3

150

On 10,000 250 175 175 Next

10,000

6

600

5

500

3

300

On 20,000 850 675 475 Next

15,000

10

1,500

9

1,350

7

1,050

On 35,000 2,350 2,025 1,525 Next

15,000

16

2,400

15

2,250

13

1,950

On 50,000 4,750 4,275 3,475 Next

20,000

21

4,200

20

4,000

19

3,800

On 70,000 8,950 8,275 7,275 Next

30,000

26

7,800

25

7,500

24

7,200

On 100,000

16,750 15,775 14,475

Next 50,000 29 14,500 28 14,000 27 13,500 On 150,000

31,250 29,775 27,975

Next 100,000 30 30,000 29 29,000 27 27,000 On 250,000

61,250 58,775 54,975

Above 250,000 30 29 28

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Co-operative income tax rates

Chargeable Income

Assessment Year 1996-2000 (PY)

Assessment Year 2000(CY) -2001

Assessment Year 2002 – 2007

RM Rate (%)

Tax payable (RM)

Rate (%)

Tax payable (RM)

Rate (%)

Tax payable (RM)

First 10,000 0 0 0 0 0 0 Next 10,000 2 200 1 100 0 0 On 20,000 200 100 0 Next 10,000 5 500 4 400 3 300 On 30,000 700 500 300 Next 10,000 8 800 7 700 6 600 On 40,000 1,500 1,200 900 Next 10,000 11 1,100 10 1,000 9 900 On 50,000 2,600 2,200 1,800 Next 25,000 14 3,500 13 3,250 12 3,000 On 75,000 6,100 5,450 4,800 Next 25,000 18 4,500 17 4,250 16 4,000 On 100,000 10,600 9,700 8,800 Next 50,000 22 11,000 21 10,500 20 10,000 On 150,000 21,600 20,200 18,800 Next 100,000 25 25,000 24 24,000 23 23,000 On 250,000 46,600 44,200 41,800 Next 250,000 28 70,000 27 67,500 26 65,000 On 500,000 116,600 111,700 106,800 Above 500,000 30 29 28

Non-resident individual income tax rates

Assessment year

Rate

1988 40% 1989 to 1992 35% 1993 34% 1994 32% 1995 to 2000 (PY) 30% 2000 (CY)– 2001 29% 2002-2007 28%



Company income tax rates

Assessment year

Rate

1988 40% 1989 to 1992 35% 1993 34% 1994 32% 1995 to 1997 30% 1998 – 2006 28% 2007 27%

• For assessment year 2003 - companies with paid-up capital of RM2.5 million and below will be taxed at 20% on chargeable income of first RM100,000. The remaining income will be taxed at 28%. Effective from assessment year 2007 the remaining incomw will be taxed at 27%.

• Effective from assessment year 2004 the threshold was increased to RM500,000. Withholding Tax

Types of payment to non-resident

Tax Rate

Interest 15% Royalty 10% Remuneration/fee to public entertainer 15% Technical advice, assistance or technical services rendered outside Malaysia (w.e.f. 21/9/2002). Previously the rate is 10%.

0%

Technical advice, assistance or technical services rendered in Malaysia 10% Installation fee and rental of moveable property 10% Non-resident contractor (w.e.f. 21/9/2002) Previously the rate is 15% + 5% 10% + 3%

Note: If Double Tax Agreement (DTA) between Malaysia and recipient country provides lower rate then rate specified in the DTA prevail

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Real Property Gains Tax Rates

Company Person other than company

Individual who is not a citizen and not a permanent resident

Disposal within 2 years after date of acquisition 30% 30% 30%

Disposal in the 3rd. year 20% 20% 30%

Disposal in the 4th year 15% 15% 30%

Disposal in the 5th year 5% 5% 30%

Disposal in the 6th year and thereafter 5% Nil 5%

Income Tax Rebates

Resident individual with chargeable income of RM35,000 or less (w.e.f. 2001). Previously the rebate is RM110 for tax payer and RM60 for spouse if the spouse elect for joint assessment or has no income and the chargeable income does not exceeds RM10,000.

RM350 for the tax payer and RM350 for spouse (if spouse elect for joint assessment or has no income)

Zakat - Resident individual Amount of zakat paid but

restricted to amount of tax payable

- Labuan offshore companies ( w.e.f 2003) Restricted to 3% of the net profit or RM20,000.

Personal computer purchased by individual tax payers (w.e.f. 2005). Previously the rebate was RM400. 2007 Budget Proposal: This rebate will be abolished effective from assessment year 2007.

RM500



Personal relief for resident individuals

Types of Relief Amount

Self RM8,000 Disabled tax payer (in addition to the RM8,000 self relief) (w.e.f. 2005). Previously RM5,000

RM6,000

Wife or husband (if wife or husband has no income or opt for joint assessment)

RM3,000

Disabled wife or husband (in addition to the RM3,000 relief) if wife or husband has no income or opt for joint assessment. (w.e.f. 2005). Previously RM2,500

RM3,500

Normal Child unmarried and age of 18 and below (w.e.f. 2004). Previously RM800.

RM1,000 per child

Normal Child age above 18, unmarried and studying in local tertiary education institution (w.e.f. 2004). Previously RM3,200.

Max RM4,000 per child

Unmarried Disabled Child (no age limit) RM5,000 per child

Unmarried and disabled child over the age of 18 and pursuing full time education in a recognised institution of higher learning at diploma level and above locally or degree level and above abroad. (w.e.f YA 2006)

RM4,000 per child (In addition to the RM5,000 relief)

Child – age above 18, unmarried and studying abroad at degree level in an education establishment approved by the relevant government authority. (w.e.f. YA 2006). YA2004 to 2005 – RM1,00. Prior to YA 2004 - RM800.

RM4,000 per child

Life insurance premium on tax payer or/and spouse’s life and contribution to approved fund (w.e.f 2005). Previously RM5,000

Max RM6,000

Insurance premiums for education or medical benefit for tax payer, spouse or children

Max RM3,000

Annuity premium purchased through E.P.F. annuity scheme Max RM1,000 Medical expenses on tax payer, spouse and children for serious diseases inclusive of complete medical check up (medical check up restricted to RM500)

Max RM5,000

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Personal relief for resident individuals …. Contd…

Types of Relief Amount

Education fee – technical, vocational, industrial, scientific or technological skill or qualification (for tax payer). Effective from assessment year 2006 this relief is extended to accountancy and law courses undertaken at the recognised institution of higher learning. 2007 Budget Proposal: The releif be extended to courses in Islamic Finance approved by Bank Negara Malaysia or Securities Commission at local institutions of higher education including at the International Centre for Education in Islamic Finance

Max RM5,000

Medical expenses for parents Max RM5,000 Purchase of books, journal and magazine for the use of the tax payer, spouse or children (w.e.f 2005). Previously RM500.

2007 Budget Proposal:

The relief will be increased to RM1,000.

Max RM700

Purchase of basic supporting equipment for the use of the tax payer, spouse, parent or children who is disabled person

Max RM5,000

2007 Budget Proposal: Purchase of personal computer. The relief will be given once in every 3 assessment years.

Max RM3,000.

Capital Allowance Rates

Types of Asset Initial Allowance

(%)

Annual Allowance

(%)

Heavy machinery & motor vehicle:

• Building & construction industry 30 ] 20]

• Timber industry 60 } w.e.f. YA1998 20} w.e.f. YA2000 CY

• Tin mining industry 60 ] 20]



Capital Allowance Rates …. Contd…


(%)

Annual Allowance

(%)

• Imported heavy machinery used in building & construction, mining, plantation and timber industry – (w.e.f. 17.10.1997)

10

10

• Other industry 20 20 w.e.f. YA2000 CY

Plant & Machinery:

• Building & construction industry 30] 14]

• Timber industry 60} w.e.f. YA1998 14} w.e.f. YA2000 CY

• Tin mining industry 60] 14]

• Other industry 20 14]

Others:

• Building & construction industry 30] 10]

• Timber industry 60} w.e.f. YA98 10] w.e.f. YA2000 CY

• Tin mining industry 60] 10}

• Other industry 20 10]

Special plant & equipment for:

• Plant or machinery used by manufacturing company for recycling of wastes

(w.e.f. YA 2001)

40 20

• Bus using natural gas

• Natural gas refuelling equipment used at natural gas refuelling outlet

(w.e.f. 1.1.1997)

40 20

Computer & ICT equipment (w.e.f. YA 96) 20 40 Computer software (w.e.f. YA 99) 20 40 Plant or machinery used for qualifying project under Schedule 7A (w.e.f. YA 2001)

40 20

Qualifying machinery and equipment used in agriculture sector including plantation (w.e.f. 2005)

20 40

Qualifying equipment used by companies to ensure quality of power supply (w.e.f. 2005)

20 40

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Capital Allowance Rates …. Contd…


(%)

Annual Allowance

(%)

Small asset (value not exceeding RM1,000 each) Total value of such assets are capped at RM10,000. (Optional). (w.e.f. YA 2006)

0

100

Purchase of moulds used in the production of Industrial Building System (IBS) (w.e.f. YA 2006)

40 20

Notes:

1. “Heavy machinery” – Bulldozers, cranes, ditchers, Excavators, graders, loaders, rippers, rollers, rooters, scrappers, shovels, tractors, vibrator wagons etc.

2. “Motor vehicles” - All types of motorized vehicles such as motorcycles, aeroplanes, ships etc.

3. “Plant & machinery” – General plant and machinery not categorized as heavy machinery. Example – air conditioners, compressors, lifts, laboratory and medical equipment, ovens etc.

4. “Others” – Office equipment, furniture and fittings Industrial Building Allowances (IBA)

Type of Building Initial Allowance

(%)

Annual Allowance

(%)

Factory, dock, wharf, jetty or other similar building, warehouse (with factory) Building used in the business of supplying water, electricity and telecommunication services, agriculture and mining

10

3

Canteen, rest-room, recreation room, lavatory, bathhouse, bathroom or wash-room (with industrial building) Building for the welfare or living accommodation of persons employed in the working of a farm

10

3

Private hospital, nursing home, maternity home

10

3

Building for the purpose of approved research

10

3



Industrial Building Allowance …. Contd…

Type of Building Initial Allowance

(%)

Annual Allowance

(%)

Building for the purpose of approved service project under Schedule 7B

10

3

Hotel registered with the Ministry of Tourism

10

3

Airport, approved motor racing circuit

10

3

Public road & ancillary structures on which expenditure is recoverable through toll collection

10

6

Warehouse for purpose of storage of goods for export or imported goods to be processed and distributed or re-exported

NIL

10

Living accommodation for employees employed in manufacturing, hotel, tourism business and approved service project

NIL

10

School and approved educational institution, approved industrial, technical and vocational training

NIL

10

Building constructed for accommodation for employees (with industrial building)

40

3

Building constructed under an approved build-lease-transfer agreement with the Government

10

6

New buildings occupied by MSC status companies in Cyberjaya. (w.e.f YA 2006)

0

10

2007 Budget Proposal: Building used solely for the purpose of biotechnology research activities

0

10

Documents

AljeffriDeanaljeffridean.com/portal/images/stories/pdf/doc/Budget Summary 2007.pdf · Section Page A Commentary 1 B Highlights 3 C Summary of Amendments to Direct Taxation 6 D Summary